Question

Economics 1. Draw a supply and demand model representing a market surplus and a market shortage. 2. Tlustrate graphically the effect on the market for coffee creamer if the price of coffee increases. What type of relationship exists between coffee and coffee creamer. 3. Explain a market situation in which the quantity supplied or demanded is influenced by price factor show your explanation 4. How would an increase in demand with no change in supply influence the market?

Answer 1

Q1. The situation for a a market having shortage or surplus is represented below:

ss

This market is in equilibrium with equilibrium price and quantity as p and q respectively. The region above the equilibrium price having excess supply or surplus since the supply is more than demand here. On the other hand, the region below the equilibrium price is having excess demand since demand is more than supply here.

Q2: Coffee and coffee creamer are complements. If the price of coffee increases, people will consume less of coffee and so automatically the demand for coffee creamer will decrease. If no coffee is being consumed, with what the people will consume coffee creamer!! So demand for coffee will decrease, the demand curve for coffee will shift leftwards.

Ipp PP SS

The demand curve shifts leftwards from dd to dd1.

Q3. Suppose lets consider the market for chicken. If the price of chicken goes up, the demand for chicken decreases and vice versa.

As chicken price

As chicken price goes up, there occurs a movement along the demand curve from point A to B, i.e. the consumer purchases less of chicken after the price rise.

Q4. Increase in demand with no change in supply is represented below:

zb xb TPP zpp

As demand increases, the demand curve shifts parallely rightwards from dd1 to dd2. Thus as a result of this the equilibrium price goes up from p1 to p2 and the equilibrium quantity goes up from q1 to q2.