Question

Suppose we are analyzing the market for hot chocolate. Graphically illustrate the impact each of the following would have on demand or supply. Also show how equilibrium price and equilibrium quantity would change i. Producers expect the price of hot chocolate to increase next month. J. Currently, the price of hot chocolate is $0.50 per cup above equilibrium.

Answer 1

2)Producers expect the price of hot chocolate to increase next month j

prce Pe Pe guantity

higher price indicate higher profit, this would cause suppliers to reduce their supply of hot chocolate in present month and save it to sell it in higher price month. this causes supply curve to shift leftward and would create shortage of hot chocolate in the market, this would end up increasing price of hot chocolate and reduction in hot chocolate quantity exchanged,

3) Currently, the price of hot chocolate is $.50 per cup above equilibrium

price Pet S0.50 ...Surplus Pef Od Qe Qs guantity

a price above equilibrium will affect both quantity demanded and quantity supplied and will cause a surplus in the market. It will not cause either demand or supply to shift.