Determinants of Demand & Supply

Scenario 1 Joshua’s income increases, while federal taxes increase; therefore, please illustrate by constructing a supply and demand graph, the direction in which the curves will shift and state the new equilibrium price and quantity; for example, state whether price and quantity increased, decreased, or are indeterminate. Please explain your rationale based on the determinants of demand and supply. Explanation: Since Joshua’s income increases, it will cause the demand curve to move right. Since federal taxes increases, Joshua’s net pay will decrease. This causes the demand curve to move left. If Joshua’s increased income is greater in amount than the increase in federal taxes, the demand curve will move right, as that is the total outcome/effect. If Joshua’s federal tax increase is greater in amount than his increased income, the demand curve will move left, as that is the total outcome/effect. In Joshua’s scenario, we are not given any numbers to calculate if his income increase or federal tax increase is greater. Hence, we are unable to demonstrate the outcome in regard to price and quantity