Business, 21.02.2020 19:17 GlitterGayness

Draw hypothetical supply and demand curves for tea. show how the equilibrium price and quantity will be affected by each of the following occurrences.

a. Bad weather wreaks havoc with the tea crop.
b. A medical report implying tea is bad for your health is published.
c. A technological innovation lowers the cost of producing tea.
d. Consumers income falls. (Assume tea is a normal good.)

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In order to answer each option (a, b, c, d) to this question, you need to understand the dynamics of the supply and demand curves. Equilibrium occurs at the point where the supply curve and demand curve intersects with each other. There is an inverse relationship between the supply curve and demand curve.

a) The new equilibrium price will be higher and the new equilibrium quantity will decrease.

b) The new equilibrium price will decrease (lower) and the new equilibrium quantity will decrease.

c) The new equilibrium price will decrease (lower) and the new equilibrium quantity will increase.

d) The new equilibrium price will decrease (lower) and the new equilibrium quantity will decrease.

Explanation:

a) A factor such as bad weather affects the quantity of the tea crops and will result in a decrease in the quantity of tea supplied. Therefore, in this question, the new point at which equilibrium meets shift the supply curve to an increase in the equilibrium price and a decrease in the quantity of tea supplied.

b) A factor such as negative information (like a medical report claiming that tea is bad for you) will decrease the demand for a product (like tea) and therefore it means the sales of tea will decrease which affects the price of tea resulting in a decrease in the price of tea at equilibrium.

c) Where there is an improvement in the production (technologicaly innovation) of a product (like tea) which results in the costs of production being decreased then the quantity supplied will also increase in the market.

d) Similar to the explanantion and effects as (b), when the income of a consumer becomes less, the demand for the tea will also decrease because the tea is no longer affordable for the customer. In this case the demand curves shifts downward.

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Pay attention in class and maybe you would know

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answer; conceptual skills;

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Draw hypothetical supply and demand curves for tea. show how the equilibrium price and quantity will...

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