Question

Q3: Choose one of the products from List A (avocados, camel milk, champagne, gold, Japanese melons, oysters, truffles, vanilla) OR from List B (air travel, palm oil)

If you chose a product from List A,

• specify which product you chose;
• give and explain two (and only two) specific and distinct events that has caused the price of the product to increase using relevant economic terms;
• using a properly-labelled demand and supply graph, illustrate the impact of each event on the product’s market; and

summarize the impact of each event using the table below

Answer 1

* product selected from list A is Japanese Melons

* Two events that caused the price of Japanese melons to increase are.

1) lncrease in the price of grapes.

Grapes are an important ingredient of champagne. Increase in the price of grapes increases the cost of production. As a result, supply of champagne will decline. This can be explained with the help of the following diagram. .

Initial Equilibrium is determined by the intersection of demand curve DD and Supply curve SS. Corresponding equlibrium quantity is Q and equlibrium price is P. When quantity supplied of champagne falls, supply curve shifts to left, from SS to S1S1. Intercession of S1S1 with demand curve DD results in a new Equilibrium. Equlibrium price increases from P to P1. Equlibrium quantity falls from Q to Q1.

2) lncrease in disposable income due to rapid urbanisation.

Income is an important determinant of demand. People getting more income will obviously lead to a rise in consumption. Champagne is a major part of uraban celebrations . parties are considered to be incomplete without champagne. Its also considered to be a premium luxury product or a symbol of status. Studies have already proved that an increase in disposable income as a result of urbanisation leads to a considerable rise in the demand for champagne.

This can be explained with the help of the following diagram.Intersection of demand curve DD and supply curve SS establishes Initial equlibrium.Equilibrium is quantity is Q and equlibrium price is P.

When quantity demand for champagne increase, demand curve shifts to right from DD to D1D1. Intersection of new demand curve D1D1 with SS leads to the establishment of a new equlibrium. Equlibrium price increases from P to P1 and equlibrium quantity increases from Q to Q1.

* Table