DEMAND AND SUPPLY

1.0. The price of cod is much higher today than it was 20 years ago. Using demand and supply diagrams, explain why this should be so. Demand

price surplus Po S

P1 D1

Do

Quantity 0 Q1 Qo

Original price Po quantity Qo. When the price of cod increase, raises the cost of production. Therefore, produces here to out off the demand and the demand curve will shift inwards from Do to D1. If the price remain at Po, there will be a surplus in the market, which means the quantity demanded less than quantity supplied. This price will decrease from Po to P1 and quantity will decrease from Qo to Q1.

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Supply

Price

S1 So

P1

Po shortage D Quantity 0 Q1 Qo

When the supply of cod decrease from So to S1, the supply curve will shift inwards. Thereby, will be a shortage in the market, which means the quantity demanded is greater than quantity supplied. This price will increase from Po to P1 while the quantity will increase from Qo to Q1 of the supply curve.

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2.0. Over the past 20 years, technological advances the cost of computer chips. Use a separate supply and demand diagrams to illustrate the effect of this situation for:

2.1. Computer

price surplus Po S

P1 D1

Do

Quantity 0 Q1 Qo

Demand The computer chips and computers is the complementary goods. The demand curve of computers will shift inwards from Do to D1. Thus, the price also decrease from Po to P1 and there will be a surplus on the demand curve. Quantity of the computers also decrease from Qo to Q1.

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Price

S1 So

P1 surplus Po D Quantity 0 Q1 Qo

Supply Supply curve of computers, also shift inwards from So to S1 and there will be a surplus in the market. Therefore, the price increase from Po to P1 and quantity will decrease from Qo to Q1.

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2.2. Computer software

price S P1

Po

shortage Do

D1

Quantity 0 Qo Q1

Demand The computer software and computer chips also the complementary goods. The demand curve of computer software will shift outwards from Do to D1 and the price will increase from P0 to P1. There will be a shortage in the market and the quantity of computers software became increase from Qo to Q1.

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Price

So S1

Po

P1 shortage D Quantity 0 Qo Q1

Supply While, the supply curve of computers software will shift outwards from So to S1. It is will be shortage because supplied increase. Therefore, the price decrease from Po to P1 and the quantity increase from Qo to Q1.

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2.3. Typewriters

price surplus Po S

P1 D1

Do

Quantity 0 Q1 Qo

Demand The typewriters and computer chips is no relationships to each others. The demand curve will shift inwards from Do to D1. This is will be surplus on the demand curve. The price will decrease from Po to P1, same goes with the quantity became decrease from Qo to Q1.

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Price

S1 So

P1 surplus Po D Quantity 0 Q1 Qo

Supply The supply curve also will shift inwards from So to S1. Therefore, the price of typewriters will increase from Po to P1 and quantity will decrease from Qo to Q1. There will be a surplus on the supply curve because of the technological advances.

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3.0. What will happen to the equilibrium price and quantity of butter in each of the following cases? You should state whether demand or supply or both have shifted and in which direction: 3.1. A rise in the price of margarine.

price surplus Po S

P1 D1

Do

Quantity 0 Q1 Qo

Original price Po and quantity Qo. A rise in the price of margarine cause the demand curve will shift inwards from Do to D1. There will be a surplus in the market. This price of margarine will decrease from Po to P1 and quantity decrease from Qo to Q1, because produces of margarine raises the cost of production.

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3.2. A rise in the demand for yogurt.

Price

S1 So

P1 surplus Po D Quantity 0 Q1 Qo

Original price Po and quantity Qo. A rise in the demand for yogurt cause the supply curve will shift inwards from S0 to S1. Therefore, will be a surplus while the price of yogurt will increase from Qo to Q1.

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3.3. A rise in the price of bread.

price surplus Po S

P1 D1

Do

Quantity 0 Q1 Qo

Original price Po and quantity Qo. A rise in the price of bread cause the demand curve will shift inwards from Do to D1. It is will be a surplus in the market. The price of bread will decrease from Po to P1 and quantity decrease from Qo to Q1.

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3.4. A rise in the demand for bread

Price

S1 So

P1 surplus Po D Quantity 0 Q1 Qo

Original price Po and quantity Qo. A rise in the demand for bread cause the supply curve will shift inwards from So to S1. Therefore,will be a surplus while the price of bread will increase from Po to P1 and quantity decrease from Qo to Q1.

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3.5. An expected increase in the demand for butter in the future.

Price

surplus E1

S1 So

Po Eo P1 shortage Do D1 Quantity 0 Q1 Qo

Original price Po and quantity Qo. An expected increase in the demand for butter in the future cause the demand curve will shift outwards from Do to D1 there will be a surplus. The price of butter will increase from Po to P1 and quantity will decrease from Qo to Q1 for the both of curve.

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3.6. A tax on butter production.

Price

S1 So

P1 surplus Po D Quantity 0 Q1 Qo

Original price Po and Qo. A tax on butter production cause the supply curve will shift inwards from So to S1. There will be a surplus in the market. This price of the butter will increase from Po to P1 and quantity decrease from Qo to Q1.

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3.7. The invention of a new, but expensive, process of removing cholesterol from butter, plus the passing of a law which states that butter producers must use this process.

Price

S1 So

P1 surplus Po D Quantity 0 Q1 Qo

Original price Po and quantity Qo. The invention of a new, process of removing cholesterol from butter cause the supply curve will shift inwards from So to S1. There will be a surplus. The price of butter will increase from Qo to Q1 because the passing of law that butter producers must use this process.

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