Question

Explain with both concise narrative and illustrative supply and demand curve movements (no numbers), what happens under the following scenarios?

Explain and graphically depict supply and demand conditions if the National Diabetes Association comes out in support of stevia as a zero-calorie sweetener.

Explain and graphically depict supply and demand conditions if a new competitor with a stevia-sweetened strawberry jam enters the market.

Explain and graphically depict supply and demand conditions if the price of peanut butter increases significantly in the market.

Explain and graphically depict supply and demand conditions if the success of stevia sweetener in general (for all sweetening needs) increases the demand for stevia and prices for the natural sweetener increase as a result of such strong demand.

Answer 1

1) National Diabetes Association comes out in support of stevia as a zero-calorie sweetener. This will increase the demand for stevia because people will consume it more considering it is being endorsed by a national agency. The demand curve will shift outwards and there will be an increase in the price and quantity demanded and supplied.

2) A new competitor with a stevia-sweetened strawberry jam enters the market. Competition will drive away consumers from the market of stevia and so the demand will decrease. The demand curve will shift inwards and there will be an decrease in the price and quantity demanded and supplied.

3) The price of peanut butter increases significantly in the market. Higher price will discourage consumption so the quantity demanded will fall. This will reduce the quantity demand and there will be no shift but an upward movement along the demand curve.

4) The success of stevia sweetener in general (for all sweetening needs) increases the demand for stevia and prices for the natural sweetener increase as a result of such strong demand. Here again, because of the strong demand for stevia, demand for natural sweetener will increase.  The demand curve will shift outwards and there will be an increase in the price and quantity demanded and supplied.