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After several years of decline, the market for handmade acoustic guitars is making a comeback
After several years of decline, the market for handmade acoustic guitars is making a comeback. These guitars are usually made in small workshops employing relatively few highly skilled luthiers. Assess the impact on the demand, supply, equilibrium price and quantity of handmade acoustic guitars as a result of each of the following events. In your answers indicate which curve(s) shift(s) and in which direction.
a. Environmentalists succeed in having the use of Brazilian rosewood banned in the United States, forcing luthiers to seek out alternative, more costly woods.
b. A foreign producer reengineers the guitar making process and floods the market with identical guitars.
c. Music featuring handmade acoustic guitars makes a comeback as audiences tire of heavy metal and grunge music.
d. The country goes into a deep recession and the income of the average American falls sharply.
Expert Solution
The acoustic guitar market is a leisurely good market. The market preferences are controlled by income and resources. Increases in income increase price and output.
a. The banning of a raw material increases the costs of production and decreases supply. The supply curve shifts to the left. This increases the equilibrium price and decreases the equilibrium quantity.
b. Foreign exports infused into the market decrease the demand for the domestic product. This shifts the demand curve to the left. This decreases the equilibrium price and decreases the equilibrium quantity.
c. The acoustic industry being revived causes an increase in the demand of the product. This shifts the demand curve to the right. This increases the equilibrium price and increases the equilibrium quantity.
d. A deep recession that decreases income causes the demand for leisure items to decrease. This decreases the demand for guitars and shifts the demand curve to the left. This decreases the equilibrium price and decreases the equilibrium quantity.
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