Refer to the above graph, which shows the market for bicycles. S1 and D1 are the original supply and demand curves. D2 and D3 and S2 and S3 are possible new demand and supply curves. Starting
From the initial equilibrium (point 1), what point on the graph is most likely to be the new equilibrium
After a sharp increase in traﬃc accidents involving cyclists and the payment of subsidies to bicycle
Producers?

Question

Quizplus · Accepted Answer

The new equilibrium is likely to occur at point 6 where the demand curve has shifted to D3 and the supply curve has shifted to S2 due to the increase in subsidies to bicycle producers. This results in a higher quantity supplied and a lower quantity demanded, leading to a new equilibrium with a higher equilibrium price and quantity. Point 4 is not likely to be the new equilibrium because it is below the initial equilibrium, indicating a decrease in both price and quantity. Points 3 and 5 are also unlikely to be the new equilibrium as they are on the original supply curve but a shift in demand has occurred.

Refer to the Above Graph, Which Shows the Market for Bicycles