Question

Predict how each of the following events will affect the equilibrium price and quantity in the Vancouver market for bottled water. In each case, only one change at a time happens. Sketch a separate graph for each part.

(a)   People commit to using less plastic in everyday life.

(b) Floods contaminate the urban water filtering system.

(c)   Water-bottling companies and their products are banned from the province.

(d) The price of all soda drinks doubles because of a tax.

(e)   The price of bottled water doubles.

Answer 1

a. Due to people's commitment to use less plastic, people will not prefer bottled water. This is because bottled water comes in plastic bottles. This will reduce the demand for bottled water.

Now, given the supply curve, the reduction in demand for bottled water will lead to reduction in equilibrium quantity and price. This is shown in the attached image.

b. Contamination of filtering system will disrupt the supply of filtered water. Thus, the supply curve will shift backwards. With the given demand curve, the new backward shifted supply curve will lead to rise in equilibrium price and decline in equilibrium quantity.

c. This will affect the supply of the bottled water. The supply curve will shift backward by a large amount because the store owners will try to sell whatever stock is there with them. The effect will be a rise in equilibrium price and reduction in equilibrium quantity.

d. Soda drinks is seen as a substitute of bottled water. If their price doubles, people will shift from soda drinks to bottled waters. Due to this, the demand curve of bottled water will shift forward and it will raise its equilibrium price and quantity.

e. The change in price of water bottle will affect its demand curve. There will be movement on the same demand curve as shown in the figure. This will create a situation of excess supply. Producers will reduce the supply because there is already enough supply in the market. The supply curve shifts backwards. The new equilibrium is attained at higher price level and lesser equilibrium quantity.