Question

Consider the market for platinum jewelry. Use a supply and demand graph to illustrate the following: An increase in the price of platinum increased the price of platinum jewelry, and consumers responded by purchasing less platinum jewelry.

1. Graph the supply and demand curve.

2. Explain what happens to the equilibrium price.

Answer 1

1.

I Price Quantity → E > Equiebrium Point <> Equilbrium Quantity P - » Price 5 New Equilbo Point Q- " " Quantity

2. Since, both Demand and supply are decreasing in this case ( demand is decreasing from D to D1 due to high prices, supply is decreasing from S to S1 due to high prices of input i.e. platinum), thus equilbrium qauntity will decline from Q to Q1 because consumers will purchase less and suppliers will supply less. But, the effect on Prices cannot be determined in this case.