Supply and Demand Analysis: Price and Quantity Shifts

Here’s the analysis of the given scenarios using supply and demand diagrams and explanations:

1. Shocks and Market Equilibrium:

(a) East Coast Heatwave and Ice Cream:

• Effect: Increased demand for ice cream in New England.
• Diagram: Demand curve shifts right (D1 to D2), equilibrium price and quantity rise (P1Q1 to P2Q2).
• Explanation: The heatwave creates a temporary increase in demand for ice cream, represented by the rightward shift of the demand curve. This leads to a higher equilibrium price and quantity in the market.

(b) Ice Cream Tax on Producers:

• Effect: Supply curve shifts left (S1 to S2), equilibrium price rises (P1 to P2), quantity falls (Q1 to Q2).
• Explanation: The tax on producers increases their cost of production, effectively shifting the supply curve leftward. This results in a higher equilibrium price and lower equilibrium quantity compared to the pre-tax market.

(c) Mexican Textile Strike:

• Effect: Decreased supply of Mexican textiles.
• Diagram: Supply curve shifts left (S1 to S2), equilibrium price rises (P1 to P2), quantity falls (Q1 to Q2).
• Explanation: The strike restricts production, causing a leftward shift in the supply curve. This leads to a higher equilibrium price and lower equilibrium quantity for Mexican textiles.

(d) Strike’s Impact on Chinese Textiles:

• Effect: Potential increase in demand for Chinese textiles.
• Diagram: Depending on the magnitude of the Mexican strike, the demand for Chinese textiles may shift right (D1 to D2) if they become a substitute for Mexican products. This would increase the equilibrium price and quantity for Chinese textiles.

(e) Bottled Water Price Cap:

• Effect: Potential excess demand (quantity demanded exceeding quantity supplied at the capped price).
• Diagram: The capped price (Pcap) is below the equilibrium price (P1). This creates excess demand (Qd > Qs), potentially leading to shortages and black markets.

2. Own-Price Elasticity:

(a) Computers vs. Apple MacBooks:

• More elastic: Computers in general.
• Explanation: Computers encompass a wider range with varying prices and substitutes, making demand more responsive to price changes. Apple MacBooks have a smaller market share and fewer close substitutes, resulting in less-elastic demand.

(b) Stereo Headphones vs. Hearing Aids:

• More elastic: Stereo headphones.
• Explanation: Headphones are discretionary purchases with several affordable alternatives, making demand more sensitive to price changes. Hearing aids are often essential medical devices with limited substitutes, leading to less-elastic demand.

(c) Retail Gasoline in Chicago Suburbs:

• More elastic in the long run:
• Explanation: In the short run, substitutes like public transportation might be limited, making demand less responsive to price changes. In the long run, consumers can adjust by purchasing fuel-efficient vehicles or relocating to areas with lower fuel costs, increasing price elasticity.

(d) Air Conditioning Units in Miami Beach:

• More elastic in the short run:
• Explanation: In the short run, adapting to hot weather without air conditioning might be challenging, making demand less elastic. In the long run, consumers can invest in energy-efficient units or move to cooler climates, increasing price elasticity.

These are just general predictions based on available information. The actual price elasticity of these goods can be influenced by various factors beyond those mentioned here.