Assume the market for spiral bound notebooks is in equilibrium. All students in public schools need notebooks of some type when they attend classes. For each of the following, explain the possible effects on demand and/or supply and equilibrium price and quantity of spiral bound notebooks using a correctly labeled supply and demand graph with equilibrium price and quantity labeled. Under your hand-drawn graph, list the determinant of supply and/or demand that causes each shift as well as the change in price and quantity.

a) The price of natural gas, a resource used by manufacturers throughout the United States, doubles.

b) The government provides a subsidy for notebook manufacturers.

c) Your income increases and spiral bound notebooks are an inferior good.

a) If energy prices go up, manufacturing costs go up, which ultimately increases the price of the notebook. This will also most likely lead to a decrease in quantity, as the manufacturing cost per unit is higher. This is a supply determinant.

b) In theory, the subsidy reduces the cost per unit to the manufacturer, which increases supply and often reduces price, again being a supply-side determinant. In reality, it creates an incentive for notebook manufacturers to keep doing what they are doing, disincentivizing cost-saving developments and alternatives. Why innovate when you can get free government cheese?

Anyway, supply determinant.

c) The price of an inferior good increasing tends to push some demand for superior goods, especially when the income to cost of good ratio remains the same for the inferior good but gets better for the superior one. Demand determinant.