Question

Use supply and demand curves and the 4-Step Approach to analyze the effects on the beef market to the following conditions: The price of pork rises, and the price of leather falls.

a). Show the 4-Step Approach in the text box below

b). Draw the graph from the previous question using the whiteboard below.

Answer 1

The four step approach is as follows;

Step 1) Draw an initial Demand Supply curve at equilibrium before any change in the model. Also, the slope of the Demand and Supply curve, follow the rules of the law of demand and supply thus abiding to any change in the model.

Step 2) To decide whether the change factor affects the demand curve or the supply curve.

Step 3) To identify whether change in demand causes any resultant change in supply curve ( If it shifts left or right)  and vice versa.

Step 4) To identify the new equilibrium point, the new equilibrium level of price and output and comparing it with the previous equilibrium level drawn at step 1.

Now let us graph the effects in the beef market when;

1) Price of pork rises :

When price of pork rises, demand for beef will have a direct impact and would rise as beef and pork are substitute goods that can be replaced in the place of one another. So, if price for pork rises, people are ought to buy more of beef as it is a cheaper alternative. Thus the demand curve for beef shifts rightward, indicating an increase in demand and a resultant increase in price and quantity.

2) When price of leather falls;

Beef and leather are complements in production as they are produced together. So, if there is a decrease in the price of leather, sellers are bound to reduce the supply of leather and increase the supply of beef in order to earn more profits as prices for beef are higher than that of leather and supplying more beef than leather can earn a seller higher profits (Law of Supply). So, there is a rightward shift in the supply curve for beef indicating increase in supply of beef and decrease in the price for the same.