In: Economics
Question 2
Explain the effects of each situation below on the market demand and supply using suitable diagrams.
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.