### Understanding Market Equilibrium Shifts: Supply and Demand AnalysisIn this exercise, we are analyzing changes in market equilibrium based on shifts in the demand curve. We will start at the original equilibrium price (P1) and observe changes as we move along the supply curve (S1) to the new demand curve (D2).#### Step-by-Step Process:1. **Identify Original Equilibrium:** - The original equilibrium is where the initial supply curve (S1) intersects the original demand curve (D1). - At this intersection, the equilibrium price (P1) is approximately $3.00, and the equilibrium quantity is 10,000 units.2. **Shift in Demand Curve:** - The demand curve shifts from D1 to D2, indicating an increase in demand. - This shift is depicted by the new intersection of the supply curve (S1) with the new demand curve (D2).3. **Follow the Supply Curve:** - Starting at P1, move to the right along the S1 supply curve. - You will reach a new intersection point with the demand curve D2.4. **New Equilibrium Analysis:** - At the new intersection, the equilibrium price (P2) has risen to approximately $4.00. - The quantity has increased to 20,000 units.#### Observations:- **Production Change:** The production has increased from 10,000 units to 20,000 units.- **Price Change:** The price has increased from approximately $3.00 to $4.00.#### Graph Explanation:The graph provided includes:- **Y-axis:** Represents Price, ranging from $1.50 to $4.50.- **X-axis:** Represents Quantity, ranging from 10,000 to 20,000 units.- **Supply Curve (S1):** Upward sloping, indicating that as price increases, quantity supplied also increases.- **Original Demand Curve (D1):** Downward sloping, indicating that as price decreases, quantity demanded increases.- **New Demand Curve (D2):** Also downward sloping but starts at a higher price level, showing an increase in demand at each price level.- **Equilibrium Points:** - **R1:** Original equilibrium (P1, Q1) at the intersection of S1 and D1. - **R2:** New

The demand curve for a good shows the negative relationship between price and quantity demanded of…

Start at the original equilibrium price (P1). Follow it to the right along the S1 supply curve until you reach the new demand curve (D2). At this point, has your production increased, decreased, or stayed the same? What happens to the price at this point? Y axis (PRICE) $4.50 $3.50 s1 $2.50 $1.50 D2 D1 X axis (QUANTITY) 10,000 20,000

Start at the original equilibrium price (P1). Follow it to the right along the S1 supply curve until you reach the new demand curve (D2). At this point, has your production increased, decreased, or stayed the same? What happens to the price at this point? Y axis (PRICE) $4.50 $3.50 s1 $2.50 $1.50 D2 D1 X axis (QUANTITY) 10,000 20,000

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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