2. Consider the market for I-pods. Suppose there is a rise in consumer's income (assuming that I-pods are normal goods) and at the same time the
government gives $25,000 in subsidies to businesses in the I-pod industry to
produce more l-pods. If the supply curve shifts more than the shift in the
demand curve, then what will happen to equilibrium price and equilibrium
quantity as a result of this scenario? Please use graphs and words to explain
your answer. In answering this question, you must label and draw your
initial demand and supply curves D1 and Si, label Price on the Y-axis and
Quantity on the X-axis, label and draw the new supply curve S2 and the new
demand curve D2, label the initial equilibrium price and equilibrium
quantity, P1 and Q1 and the new equilibrium price P2 and the equilibrium
quantity Q2. Finally, provide a complete explanation of your graph.