Question

Explain the effects of each situation below on the market demand and supply using suitable diagrams.

1. A new skirt design which increases the preferences for the Asshanas clothing brand among teenagers.                                                                                                             
2. A government ban on the supply of meat from New Zealand.                                   
3. The increased price of chicken feed and hos this affects the chicken market.             
4. The effects of the Goods and Services Tax (GST) on smartphone purchases.              

Answer 1

In all the graphs, D0 & S0 are initial demand and supply curves, intersecting at equilibrium point A with initial equilibrium price P0 and initial equilibrium quantity Q0.

(a)

Increase in consumer preference will increase the demand for the clothing brand. Demand curve shifts to right, increasing both price and quantity.

In following graph, D0 shifts right to D1, intersecting S0 at point B with higher price P1 and higher quantity Q1.

(b)

Ban on supply causes a decrease in market supply, shifting supply curve to left, increasing price and decreasing quantity.

In following graph, S0 shifts left to S1, intersecting D0 at point B with higher price P1 and lower quantity Q1.

(c)

Higher price of chicken feed, an input to chicken production, will raise its production cost, so firms decrease production. Supply decreases, shifting supply curve to left, increasing price and decreasing quantity.

In following graph, S0 shifts left to S1, intersecting D0 at point B with higher price P1 and lower quantity Q1.

(d)

As GST effectively increases cost, firms decrease production. Supply decreases, shifting supply curve to left, increasing price and decreasing quantity.

In following graph, S0 shifts left to S1, intersecting D0 at point B with higher price P1 and lower quantity Q1.