Market for Solar Panels

QUESTION 1

1. Diagram 1 (a) shows the market for solar panels when market is at equilibrium, supply equals to demand, the price is at P0 and quantity demanded by consumers is at Q0.

When the price of solar panels decreases to below the market equilibrium price from P0 to P1. Consumers will demand more when the price of solar panels is lower. Quantity demanded for solar panels rises from Q0 to Q1 and cause a downward movement along the demand curve.

While supply for solar panels will decrease from Q0 to Q2 as producers reduce the production of solar panels when the profit earned from selling a solar panel decrease. As a result, there will be a shortage of solar panels between Q2 and Q1.

Market equilibrium adjustment occurred when there is insufficient supply of solar panels to satisfy the demand of consumers. Consumers thus offer a higher price to buy the limited solar panels, price is then adjusted and increase from P1 back to P0. As price increases, producers increase production and consumers demand less. Market for solar panels is then adjusted and back to the equilibrium level again where supply equals to demand.

1. Electricity and solar panel are substitute. When the price of electricity goes up, consumers find it expensive and will look for a substitute to replace electricity, which is solar panel.

As a result, demand for solar panel increases and cause a shift of demand curve to the right from D0 to D1 as shown in Diagram 1(b). As demand goes higher than supply, a shortage of solar panel will occur with a quantity from Q0 to Q1. Consumers thus offer a higher price to buy the limited solar panels and at the same time producers will increase the price and supply to earn more profit. Eventually, demand will equal to supply and a new equilibrium will be formed at the point B where price is at P1 and quantity is at Q2.

1. With the use of new technology, productivity increases where producers can produce more solar panels with a same amount of money or at a lower cost. Thus, supply of solar panel increases and causes a shift of supply curve to the right from S0 to S1 as shown in Diagram 1(c). As supply goes higher than demand, a surplus will occur between Q0 to Q1. Sellers of solar panels will then decrease the price in order to be able to sell off the remaining stock available and at the same time reduce the production since the profit earned from each solar panel sold has reduced. Eventually, supply will equal to demand and a new equilibrium will be formed at the point B.

QUESTION 2

When a higher demand and a lower supply of yoga provided happen at the same time, demand for yoga will shift to the right and supply curve will shift to the left. Both of these scenarios thus result in three different outcomes in the yoga market. Diagrams for 3 different scenarios are being shown in diagram 2(a), 2(b), and 2(c) respectively.

Firstly, when the increase in demand is larger than the decrease in supply, where the shift of demand curve is greater than the shift of supply curve, a new equilibrium will be formed at a higher quantity and price.