Indicate which curve shifted demand curve supply curve or bo

Indicate which curve shifted (demand curve, supply curve or both) and in which direction – for each of the following situations: *The price of furniture rises as the quantity bought and sold falls. *Apartment vacancy rates increase while average monthly rent on apartments declines. *The price of personal computers continues to decline as sales skyrocket.

Solution

1. Fall in quantity demand and quantity supply shifts both demand and supply curve inward. But price of furnitures rises if and only if quantity of supply falls more by the fall in the amount of quantity demand. For example, say, earlier 10furnitures were demanded at $10000. Hence, 1furniture would have a price $1000. Assume that demand falls to 8units and supply falls to 5units. Now there is an excess demand in the market. Hence, the price will rise until demand falls along the new demand curve and supply rises along the new supply curve.

2. In this case apartment vacancy rates increase while average monthly rent on apartments declines. Supply for room is constant. Hence, demand for room falls as a result of which vacancies in the apartment rises. This leads to an excess supply at the ongoing average monthly rate as supply is fixed but demand falls. Consequently, average monthly rent falls. Thus, in this case on demand curve for apartment shifts leftward.

3. Given the demand supply curve shifts rightward when sales rise. Given the initial equilibrium price, aggregate supply exceeds aggregate demand. Hence, price falls until the market clears.