Question

The table below shows the market for probiotic yoghurt in Canada. Quantity Supplied (1) Quantity Demanded (2) Quantity Demanded (3) Quantity Supplied (2) Quantity Demanded (1) 130 125 120 Price ($) per carton 1.75 2.00 2.25 2.50 2.75 3.00 3.25 8 115 110 105 100 60 70 0 90 100 110 a. Suppose the price of a complementary product were to increase causing the demand to change by 20. Show the new demand in column 4 in the table above. b. The new equilibrium price is $ and quantity is c. Suppose that instead the average income were to increase (and probiotic yoghurt is a normal product) causing the demand to change by 10. Show the new demand in column 5 in the table above. d. The new equilibrium price is $ and quantity is . e. Suppose that instead the price of factors of production were to decrease causing the supply to change by 20. Show the new supply in column 6 in the table above. f. Assuming the original quantity demanded in column 2, the new equilibrium price is $ and quantity is .

Answer 1

a. When the price of complementary goods increases, demand for the product gets reduced. so, the new Quantity Demanded will be 110, 105, 100, 95, 90, 85, 80 respectively.

b, the equilibrium price is the price when demand equals supply. Hence, 2.75 is the equilibrium price where demand and supply are 90.

c. In the case of normal goods, when income increases demand also increases. So, the new quantity demanded will be 140, 135, 130, 125, 120, 115, 110.

d. The new equilibrium will be 3.25 because its demand and supply at this price are the same (ie.110).

e. If the price of factors of production decreases the supplier increases the supply. So, the new quantity supplied will be 70, 80, 90, 100, 110, 120, 130 respectively.

f. The new equilibrium price will be 2.75 because the demand and supply at this price is 110.