A key skill in economics is the ability to use the theory of supply and demand to analyze specific markets. In this assessment, you will demonstrate your ability to analyze the effects of several "shocks" on the market for first class mail (e.g., letters).
Pay Raise: Suppose postal workers are successful in obtaining a pay raise from the U.S. Postal Service.
Will this affect the supply or the demand for first class mail? Why? Which determinant of demand or supply is being affected?
Show graphically with before and after curves on the same axes.
How will this change the equilibrium price and quantity of first class mail? Explain your reasoning. (Be sure to identify which of the following apply: the cost of production, a change in technology, tastes and preferences, income, the price of substitutes or the price of complements affects equilibrium price and equilibrium quantity)
Email and Text: Now consider the invention of email and text messaging.
Explain how you imagine the invention of email and text messaging affected the market for first class mail? Why? Which determinant of demand or supply is being affected?
Show graphically with before and after curves on the same axes.
How will this change the equilibrium price and quantity of first class mail? Explain your reasoning. (Be sure to identify which of the following apply: the cost of production, a change in technology, tastes and preferences, income, the price of substitutes or the price of complements affects equilibrium price and equilibrium quantity)
Combine Cases 1 and 2: Suppose that postal workers get a pay raise and email and text messaging become common.
What will the combined impact be on the equilibrium price and quantity of first class mail?
Explain your reasoning and show graphically. Remember quantity falls, but change in price is indeterminate, since it depends on which curve shifts more.