# Discussion on demand ,supply and equilibrium

ASSESSMENT 2 – PART 1 – DEMAND, SUPPLY AND EQUILIBRIUM

1. Match the scenario below with the correct graph and identify the condition (determinant) of demand or supply that changes. Assume ceteris paribus.

• Market for Goat Milk Soap. Fires destroy a large number of goat herds.

• Market for Pasta Sauce. The price of pasta has risen dramatically following a drought destroying many wheat crops.

• Market for Hats. Health Authorities advertise the risks of skin cancer from exposure to the sun.

(1 + 1 + 1 = 3 marks)

1. Ms Brioche has a business that makes high quality bread, called Artisan Sourdough. The demand and supply schedules for this bread are given below.

 Demand Schedule for High Quality Organic Bread (per week) Supply Schedule for High Quality Organic Bread (per week) Price (in \$) Qd Price (in \$) Qs 4.00 0 4.00 80 3.50 10 3.50 70 3.00 20 3.00 60 2.50 30 2.50 50 2.00 40 2.00 40 1.50 50 1.50 30 1.00 60 0.50 20

(a)        The market is currently not in equilibrium.  The market price is \$1.50.

• What is the Quantity Demanded?
• What is the Quantity Supplied?

(0.5 + 0.5 = 1 mark)

• Is there either Excess Demand or Excess Supply?
• How much?

(0.5 + 0.5 = 1 mark)

• At what price and quantity will the market achieve equilibrium?

(0.5 + 0.5 = 1 mark)

• Each loaf of Artisan Sourdough at Ms Brioche’s bakery costs \$2 to make. At the equilibrium price, what will be Ms Brioche’s profit?

(2 marks)

Ms Brioche sells Artisan Sourdough at the local shop along side a value bread called Noxious White which sells for \$0.50.  Ms Brioche notices that, when the price of Noxious White increases from \$0.50 to \$0.75, demand for her bread increases. What types of goods are these two breads given this information?  Explain

(2 marks)

Customers at the shop are all employed by the local factory and have all received pay rises. Demand for Ms Brioche’s Artisan Sourdough has increased while Demand for the Noxious White decreased. What types of goods are these two breads given this information?  Explain

(2 marks)

(1+1+1+2+2+2 =9 marks)

1. Rubber is the main raw material used in manufacturing tyres.  Both natural and synthetic rubber are used.  Synthetic rubber is produced from polymers found in oil. Natural rubber is produced by the rubber tree.

In 2020 in Carland, a serious fungal disease is killing the rubber trees. For each of your answers below, identify the condition/s (determinant/s) of demand and/or supply and the impact on the equilibrium price and equilibrium quantity of the product in the stated market.

SUBMITTING A DEMAND AND SUPPLY DIAGRAM IS NOT NECESSARY.

• What is the effect of the fungal disease on the market for natural rubber.

(1,5 marks)

• Ceteris paribus, what is the effect on the market for synthetic rubber?

(1.5 marks)

• What is the effect of (a) and (b) on the market for car tyres?

(2 marks)

• Suppose now, with the advent of Covid, people are worried about their jobs and future income. Together with the impact in (c) what will be the impact on the market for cars?

(3 marks)

(1.5 + 1.5 + 2 + 3  = 8 marks)

(3 + 9 + 8 = 20 marks)

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