How would I explain what is happening in each scenario using economic terms in reference to supply and demand? How would I write a graphical analysis of market activity?
1: Auto repair shop
Dear Economist,
Scenario 1: When we first set-up shop in our town, we had so many customers, cars were lined-up down the street. Lately, however, my workers have been complaining that there is not enough work to do. I am confused since our prices have not changed. When we opened, our prices were so low, we were overbooked and had to turn customers away!
Scenario 2: We were working as quickly as we could when several new neighborhoods were built, and a new highway was constructed through town. Our customer base grew but I refused to raise prices! After some time, another auto shop opened in town and they matched our prices. Then additional auto shops opened and began to compete and lower prices. I thought we offered great service at a fair price and refused to change. After all, we are the best!
