Question 2 Explain the effects of each situation below on the market demand and supply using...

Question 2

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

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

Solutions

Expert Solution

Demand for any good depends on the price of substitutes, income and taste & preferrences.This is shown by shifting the entire demand curve.
While quantity of any good depends on its own price. This is shown by moving along the demand curve.
Keeping in mind these two facts, following answers are decided.

a) New skirt design will increase the preference for the brand. As a result, the demand curve for the clothing brand will increase. This is shown by shifting the entire demand curve to the right (upwards).

Demand has increased and supply is same. Thus price has increased along with quantity.

b) Since government ban supply of meat from Newzeeland, supply will decrease. This can be shown by moving the entire supply curve to the left (upwards).

Supply has decreased but demand is same. Hence price has increased and quantity demanded has decreased.

c) Since price of chicken feed increases, cost of feeding chicken increases. As a result of increase in cost, supply of chicken in chicken market will decrease. This is shown by shifting the supply curve to the left (upwards)

Increment in cost of feeding has decreased the supply since lesser number of chicken are being fed. Thus as demand is same, price has increased and quantity demanded has decreased.

d) Due to GST, price of good will increase and quantity demanded for the good will decrease. This can be shown by moving along the demand curve.

Due to increase in price, people are demanding lesser quantity. As a result supply reduces.

Rahul Sunny answered 1 year ago

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