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 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 alternative rock music. d. The country goes into a deep recession and the income of the average American falls sharply.

Step by step solution

01

a. Brazilian rosewood being banned in the United States

As a result of the ban on Brazilian rosewood, luthiers need to use more costly alternative woods to manufacture handmade acoustic guitars. This means the production cost will increase, making the supply of handmade acoustic guitars less profitable. This will cause the supply curve to shift to the left. The demand curve remains unchanged in this case. The result will be a higher equilibrium price and a lower equilibrium quantity of handmade acoustic guitars in the market.

02

b. A foreign producer flooding the market with identical guitars

A foreign producer introducing a large number of identical guitars into the market will cause an increase in supply. This will shift the supply curve to the right. Since the demand for handmade acoustic guitars remains unchanged, the result will be a lower equilibrium price and a higher equilibrium quantity of handmade acoustic guitars in the market.

03

c. Music featuring handmade acoustic guitars making a comeback

As audiences begin to prefer music featuring handmade acoustic guitars, the demand for these guitars will increase. This will cause the demand curve to shift to the right. In this case, the supply curve remains unchanged. The result will be a higher equilibrium price and a higher equilibrium quantity of handmade acoustic guitars in the market.

04

d. The country going into a deep recession

During a deep recession, the income of the average American falls sharply. This will lead to a decrease in the demand for normal goods, including handmade acoustic guitars, as people have less disposable income. As a result, the demand curve will shift to the left. The supply curve remains unchanged in this case. The result will be a lower equilibrium price and a lower equilibrium quantity of handmade acoustic guitars in the market.

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