QQuestionEconomics
QuestionEconomics
Stone and brick are substitutes in home construction. Consider the market for bricks depicted in the graph. Suppose the price of stone increases due to new regulations for the stone quarrying industry. Illustrate the impact this will have on the market for bricks.
## Equilibrium price
## Market for Bricks
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Answer
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Step 1:: When the price of a substitute good increases, the demand for the original good will shift.
In this case, an increase in the price of stone will lead to an increase in demand for bricks. This is because stone and bricks are substitute goods in home construction.
Step 2:: The new demand curve can be illustrated by shifting the original demand curve to the right, as shown in the graph below.
This represents an increase in demand, as more brick units are demanded at each price level.
Step 3:: The new equilibrium price and quantity can be determined by finding the point where the new demand curve intersects the supply curve.
In the graph below, the new equilibrium price is represented by P' and the new equilibrium quantity is represented by Q'.
Step 4:: As a result of the increase in demand, the price of bricks will also increase.
This is shown in the graph below, where the new equilibrium price P' is higher than the original equilibrium price P.
Step 5:: Additionally, the quantity of bricks demanded and supplied will increase.
This is shown in the graph below, where the new equilibrium quantity Q' is greater than the original equilibrium quantity Q.
Final Answer
The new equilibrium price will be P', and the new equilibrium quantity will be Q'.
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