Question

1. Using the market for custom made cloth face masks as an example, answer the following questions.

1. Explain the difference between a change in the quantity demanded and a change in demand. Illustrate your answers with a diagram.
2. In this market, describe three things that could cause an increase in demand.
3. In class we discussed at least four different determinants of supply. Using the market for face masks as an example, describe three of these four determinants of supply and how they might change to cause an increase in supply.

Answer 1

a) Changes in quantity demanded is defined as the movement along the demand curve, while changes in demand are defined as shifts in the demand curve. Change in quantity demanded refers to expansion or contraction of demand due to a change in the own price of the good while other factors remain the same. On the other hand, a change in demand means increase or decrease in demand due to changes in other factors while the price is unchanged. This is depicted in the figure below. A shift of the demand curve from D to D1 and D2 is a change in demand. A movement from A to B on the same demand curve due to a fall in price from P to P1 is a change in quantity demanded.

2) Increase in demand happens when factors other than the price of face masks would change. Three such factors can be

a) an increase in the level of air pollution to an extent that requires people to wear masks as a means of protection

b) Increase in the number of advertisements and advisories that direct people to use face masks to protect them from certain diseases.

c) A favourable shift in the consumer preference towards using the face mask as a fashion accessory.

There can be other factors as well. The above list is not exhaustive of all the factors.

3) The three determinants of supply and how they can lead to an increase in supply are below:

a) the number of sellers in the market- Suppose the number of firms manufacturing and selling masks increases. This will lead to an increase in the supply of face masks.

b) the technology used in production - Suppose the technology used in the production of face masks improves which leads to more output per worker. This will cause an increase in the supply of face masks.

c) the input cost - Suppose the price of cloth and material used in the production of face masks falls. This will result in an increase in the supply of face masks as making face masks is now cheaper than before and selling it at the same price would mean increased profits for the sellers.

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