1. In each of the following examples, determine (i) the market in question; (ii) whether a shift in demand or supply occurred, the direction of the shift, and what induced the shift; and (iii) the effect of the shift on the equilibrium price and the equilibrium quantity.
As the price of gasoline fell in the United States during the 1990s, more people bought large cars.
The market for large cars: this is a rightward shift in demand caused by a decrease in the price of a complement, gasoline. As a result of the shift, the equilibrium price of large cars will rise and the equilibrium quantity of large cars bought and sold will also rise.
As technological innovation has lowered the cost of recycling used paper, fresh paper made from recycled stock is used more frequently.
The market for fresh paper made from recycled stock: this is a rightward shift in supply due to a technological innovation. As a result of this shift, the equilibrium price of fresh paper made from recycled stock will fall and the equilibrium quantity bought and sold will rise.
When a local cable company offers cheaper on-demand films, local movie theaters have more unfilled seats.
The market for movies at a local movie theater: this is a leftward shift in demand caused by a fall in the price of a substitute, on-demand films. As a result of this shift, the equilibrium price of movie tickets will fall and the equilibrium number of people who go to the movies will also fall.