### Market Equilibrium DiagramThis diagram represents supply and demand curves and their intersections, illustrating market equilibrium.- **Axes:** The vertical axis represents the price of the good, while the horizontal axis represents the quantity of the good. - **Supply and Demand Curves:** - \( S1 \) and \( S2 \) are the supply curves. - \( D1 \) and \( D2 \) are the demand curves.- **Equilibrium Points:** - Point \( A \): Intersection of \( S1 \) and \( D1 \) (initial equilibrium). - Point \( B \): Intersection of \( S1 \) and \( D2 \) (new equilibrium if demand increases). - Point \( C \): Intersection of \( S2 \) and \( D2 \) (new equilibrium if both supply decreases and demand increases). - Point \( D \): Intersection of \( S2 \) and \( D1 \) (new equilibrium if supply decreases).- **Analysis:** Suppose the market equilibrium is at Point \( D \). If the price of the good is expected to rise in the future, this expectation might shift the demand curve to the right (from \( D1 \) to \( D2 \)), leading to a new equilibrium at Point \( C \). This results in both an increased price and increased quantity of the good in the market.This diagram helps in understanding how changes in supply and demand affect market equilibrium. ### Understanding Market Equilibrium Shifts#### Diagram Explanation:The diagram depicts a market scenario with supply and demand curves. Two supply curves (S1 and S2) and two demand curves (D1 and D2) are shown:- **S1**: The original supply curve.- **S2**: A new supply curve reflecting a change.- **D1**: The original demand curve.- **D2**: A new demand curve reflecting a change.The four points (A, B, C, D) indicate different equilibrium states:- **Point A**: Intersection of S1 and D1.- **Point B**: Intersection of S1 and D2.- **Point C**: Intersection of S2 and D2.- **Point D**: Intersection of S2 and D1.#### Scenario Analysis:"Suppose equilibrium is at Point D. The price of the good is expected to rise in the future. Then equilibrium will:"**Answer Choices:**- **(A)** Shift to point A.- **(B)** Shift to point B.- **(C)** Shift to point C.- **(D)** Remain at point D.In a market, if the price of a good is expected to rise in the future, the immediate effect is typically an increase in demand. This anticipation can shift the current demand curve to the right, from D1 to D2. As a result, the equilibrium point would move from the current point D to point B.### Conclusion:Given the expectation of the price rise, the correct answer is **(B) shift to point B**.### Learning Notes:- **Market Equilibrium**: Point where the quantity demanded equals the quantity supplied.- **Shift in Curves**: An outward shift in the demand curve generally indicates increased demand, whereas an inward shift indicates decreased demand. Similarly, changes in supply curves reflect shifts in supply levels.- **Impact of Future Price Expectations**: Anticipated future trends can affect current supply and demand, causing shifts in equilibrium.Understanding these dynamics is critical for anticipating market movements and making informed economic decisions.

Change in demand implies that the demand curve is either shifting to the right or left. This occurs…

Answered: Price s1 S2 D2 D1 Quantity Suppose…

Price s1 S2 D2 D1 Quantity Suppose equilibrium is at Point D. The price of the good is expected to rise in the future, then equilibrium will

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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