Question

Suppose you are analyzing the recent developments in the market for butter in Europe and the following two events occur event 1 recent scientific studies have shuggested that butter which had been linked to heart disease and increased risk of that might not be as in happy as previously thought event to military families go out of business because of unfavorable trade policies pay using a three step method explain what affect these events have on equilibrium price and equilibrium quantity of better B how would result in a change if the supply for butter was more inelastic then the demand for butter briefly explain

Answer 1

Analysing both the situations respectively

A. In the first situation it is highlighted that the commodity (butter) is not a consumer friendly good i.e. it's consumption can lead to bad health. When this type of message is been circulated in the market The demand of product is negatively effected. And the second condition of military families will not make a change in the demand of butter because it is not related either to the production of it or to the consumption of it.

So, altogether the quantity demand of butter will decrease hence leading to the reduction in equilibrium price of it.

In the Fig. 1 the event caused reduced demand and hence the the demand curve shifted from D1 to D2 , which further lead to fall in equilibrium price point from X to Y.

B. The inelastic supply means that the change in quantity supply is less effected by the by the change in quantity demand. So in this case

1. If the supply is totally inelastic it will lead to no change in the price of commodity.

2. If the supply is more inelastic than demand it will lead to less change in the price of commodity.