Question

sometimes the exports of developing nations are concentrated in only one or few primary products. for example world bank data, tobacco consists 50% of Malawi's total exports. Therefore, changes in demand or supply of tobacco can have significant effects on the health of Malawi's economy

The current world price of tobacco is $5.00 per pound, but there is uncertainty about the shape of the demand and supply curves. Tbe following graphs (scenario A and Scenario B) show two possiblilities for demand and supply in the market for tobacco

Suppose that an adoption of healthier lifestyles in advanced countires lead to a fall in the global demand for tobacco

Homework (Ch 07) Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to to its original position, just drag it a little farther. Scenario A Demand Supply Supply PRICE (Dollars) Den and QUANTITY (Pounds of tobacco) On the following graph, shift the demand or supply curve of scenario B in the same direction that you did in scenario A earch

Answer 1

1)

SCENARIO	ORIGINAL PRICE (dollars per pound)	NEW PRICE (dollars per pound)
A	5.00	1.00
B	5.00	1.00

In both the scenario the equilibrium point in met in the coordinate (5,5) so 5 pounds of tobacco is 5$ here..therefore cost of 1 pound is 1 dollar.

2) TRUE

In scenario A the supply curve is less volatile so there by if the demand get reduced due to healthy lifestyle the supply mismatch will cause severe price fluctuations.