Indicate the movement of the supply and/or demand curves, and the impact on equilibrium price and...

Indicate the movement of the supply and/or demand curves, and the impact on equilibrium price and equilibrium quantity.
The Russian government has restricted sugar availability to reduce the supply of illegal liquor (sugar is used to increase alcohol content). Russians also like to sweeten their tea with jam, another sugar product.

Expert Solution

When the Russian government has restricted sugar availability to reduce the supply of illegal liquor, the supply of sugar in the market would reduce than before. Similarly, since Russians also like to sweeten their tea with jam, which is another sugar product the demand for sugar would increase than before.

Below is the diagram for the Sugar Market, when the original demand curve is DD, the new demand curve is D'D', original supply curve is SS, the new supply curve is S'S'. Since, the demand for sugar would increase the demand curve DD would shift to the right to D'D' and since the supply for sugar would decrease due to government restrictions, the supply curve SS would shift to the left from SS to S'S'. Hence, previously the equilibrium price was P and the equilibrium quantity was Q. But, after the demand and supply change, the new equilibrium price has increased than before to P' and the new equilibrium quantity has decreased to Q'.

Rahul Sunny answered 1 year ago

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