Question

3) Using the supply and demand model, illustrate how each of the following events likely to affect equilibrium price and equilibrium quantity in the strawberry jelly market. Use well-labeled supply and demand curves for each case.

--> Consumers in this market are likely to consume 1 slice of wheat bread along 1 tablespoon of strawberry jelly. There is a decrease in the price of wheat bread. The medical community claims that consuming strawberry jelly increases your blood sugar. Decrease in the price for sugar (a raw input used in producing jellies). A weak strawberry season, leads to an increase in prices for fresh strawberries.

3rd Time Posting --- Only accurate answers please.

Answer 1

Since strawberry jelly and wheat bread are consumed together, we assume that they are complementary goods. That means that an increase in demand for one, increases the demand for the other.

Now, if there is a decrease in the price of bread, there will be a consequent increase in demand of wheat bread. Since wheat bread is consumed along with jelly, there will be an increase in the demand for strawberry jelly. This can be seen in the accompanying graph. The demand for jelly goes from D1D1 to DD (shifts to the right). The price remains the same (P).


What happens if the medical community claims that consuming jelly increases blood sugar? This will lead to a drop in the demand for strawberry jelly. The demand curve is shifted to the left, and there is a decrease in quantity and price at the equilibrium where it now intersects the supply curve. Demand curve is now D2.

If there is a decrease in the price of sugar (important input), there will be a corresponding increase in supply. With no corresponding increase in demand but an increase in supply, the following will happen:


2 Quantity demanded and supplied (units)


If there is an increase in prices of fresh strawberries, it will be followed by a decrease in supply, at the same price.



Hope this helped!