Question 2 Explain the effects
Question 2
Explain the effects of each situation below on the market demandand supply using suitable diagrams.
- A new skirt design which increases the preferences for theAsshanas clothing brand among teenagers.
- A government ban on the supply of meat from NewZealand.
- The increased price of chicken feed and hos this affects thechickenmarket.
- The effects of the Goods and Services Tax (GST) on smartphonepurchases.
Answer:
Demand for any good depends on theprice of substitutes, income and taste & preferrences.This isshown by shifting the entire demand curve.While quantity of any good depends on its own price. This is shownby moving along the demand curve.Keeping in mind these two facts, following answers are decided.
a) New skirt design will increasethe preference for the brand. As a result, the demand curve for theclothing brand will increase. This is shown by shifting the entiredemand curve to the right (upwards).
Demand has increased and supply is same. Thus price has increasedalong with quantity.
b) Since government ban supply ofmeat from Newzeeland, supply will decrease. This can be shown bymoving the entire supply curve to the left (upwards).
Supply has decreased but demand is same. Hence price has increasedand quantity demanded has decreased.
c) Since price of chicken feedincreases, cost of feeding chicken increases. As a result ofincrease in cost, supply of chicken in chicken market willdecrease. This is shown by shifting the supply curve to the left(upwards)
Increment in cost of feeding has decreased the supply since lessernumber of chicken are being fed. Thus as demand is same, price hasincreased and quantity demanded has decreased.
d) Due to GST, price of good willincrease and quantity demanded for the good will decrease. This canbe shown by moving along the demand curve.
Due to increase in price, people are demanding lesser quantity. Asa result supply reduces.
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