Question

Use the supply and demand model to explain what happens to the equilibrium price (P*) and the equilibrium quantity (Q*) for yogurt in the following cases. Please provide a separate graph for each part (a, b, c, d and e) of the question. a) The number of firms producing yogurt expands significantly. b) It is widely publicized in the press that yogurt is healthier than ice cream. c) It is widely publicized in the press that yogurt contains too much sugar which is bad for your health. d) The price of milk which is used to produce yogurt suddenly increases. e) Yogurt becomes more popular after a television commercia

Answer 1

interest in number of firms producing yogurt increases the market supply, resulting in rightward shift in S to S'. At new equilibrium e', price decreases and quantity increases.

b) when people see that yogurt is healthier than ice cream their demand increases, shifting D rightwards to D'. At new equilibrium both quantity and price are higher.

c) when consumers come to know that yogurt is bad for health, their demand for yogurt falls and D shifts to the left to D'. At new equilibrium both price and quantity are lowered.

d) increase in price of milk increases the cost of production and leads to decrease in supply. As a result S shifts leftwards to S'. At e' quantity decreases and price increases.

e) when yogurt becomes popular, its demand increases and D shifts rightwards to D'. At new equilibrium both quantity and price are higher.

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