Question 2

a) The law of demand, under the ceteris paribus, states that price and demand
are negatively proportional. Where an increase in price drives down the demand
for a particular good. This holds true even for necessities such as food. If the
price of food rises there will be many people who cannot afford to buy food
anymore thereby reducing the quantity demanded for food.

b) When the price of food raises it also increases its opportunity cost. This rise in
price creates a demand for substitutes- other goods that can be used in its place.
These substitutes are generally cheaper and therefore it provides the economy
with an incentive to switch to this substitute. Some examples of food substitutes
include:
Powdered food
Super food

c) If the price of food rises and the income received by people remains the same,
families have increasing pressure put on them to decrease the quantity of food
they buy. Some implications of rising food prices include:
Rising family tension since they cant afford to maintain their current
lifestyle.
People have to look for second jobs. Spending longer hours working
rather than with family and friends.
People have to forgo other necessities as well such as healthcare

Question 7

a) If the wage of the dairy workers rise then in turn the price of low-fat milk will
go up, decreasing the demand of low-fat milk.

b) If the price of cream increases, then the price of low-fat milk will increase, as it
is a product of it, which in decreases the demand of low-fat milk.
iii) If low fat-milk price increases, then quantity of supply will be increases, but
the demand of the supply will be decreased.

c) If the expected price of low-fat milk rises, this will cause the supply of low-fat
milk to decrease, resulting in a decrease in demand due to the increase of price.
d) This well have no affect on low-fat milk.
e) If the price of ice cream lowers, this will cause the price of low-fat milk to
decrease, resulting in less production of low-fat milk. This in turn will increase
the quantity demanded due to the lowered price.





Question 8
a) b)




c)

d)




Question 11



b) If the price for chewing gum rises from the current equilibrium price of 50
cents to 70 cents, the demand for that good will decrease to 80 million
packs/week. In order to maintain market equilibrium the market supply for
chewing gum will have to shift to the left. If the supply curve doesnt adjust there
will exist a market with excess supply.

c) If the price for chewing gum decreases from it current equilibrium price of 50
cents per pack to 30 cents per pack, there will be an increase in demand for the
good. This causes a movement down the demand curve and the supply has to
adjust to maintain market equilibrium by shifting to the right. If the supply does
not adjust to the demand of chewing gum, there exists excess demand.
120, 50
0
20
40
60
80
100
120
0 50 100 150 200 250
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Quantity (million pack/week)
Market for chewing gum
demand
Supply

Question 15
a) Expanding population is directly related to the market demand curve, as the
population increases so does the demand for the quantity of food. This will mean
that farmers and other food suppliers will need to increase their production in
order to meet the demands of people. There always exists a scarcity of resources
in our market and through lack of technological advancements farmers will not
be able to keep up with the quantity demanded and will in turn have to raise
prices. So in summary increasing population will cause an increase in price for
food. Rising income will also in turn increase the quantity demanded for food
and for the same reasons as expanding population, it will cause an increase in
food prices.

















b) Slower crop growth yield has a negative effect on the market supply curve for
food. Slow crop is an essential raw material for any food items. Farmers may
choose to charge a higher price because the crops are being produced at a slower
rate than normal thus decreasing the demand of crops. When raw material gets
expensive to purchase so does the intermediate goods. This will in turn raise
price for food.