8. Shifts in supply or demand I
The following graph plots the market for electric guitars in Denver, where there are always over 1,000 music stores. Suppose the municipal
government sharply increases local taxes, making it significantly more expensive to reside within Denver city limits. Many residents decide to leave the
city altogether for areas with lower local tax rates.
Show the effect of this change on the market for electric guitars by shifting one or both of the curves on the following graph, holding all else constant.
Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to move a curve and it snaps back
to its original position, just drag it a little farther.
PRICE (Dollars per guitar)
QUANTITY (Guitars)
Supply
Demand
Demand
Supply
Now suppose Congress passes a tax cut that increases the income of Denver residents.
If electric guitars are a normal good, this will cause the demand for electric guitars to
