Practice question on Market Equilibrium:
Que 1. Consider the following statements.
a. “New methods of growing crops have caused bumper yields in the
production of rice, causing a decrease in the price of rice.”
b. “The popularity of bananas is decreasing as consumers are switching
to other fruit options.”
1. Explain, using the determinants of demand and supply, and
appropriate diagrams, the changes in the market price and
equilibrium quantity for rice and bananas.
2. Can you think of any other factors that could affect the demand or
the supply of these goods?
Que 2. For each of the headlines below:
•
Decide the kind of shift that would occur and create a diagram to demonstrate the
shift.
•
Diagrams should show the relevant shifts and notation that reflect the new
equilibrium.
•
Identify the determinant that caused the shift.
i. Heavy rainfall affects the market for rubber boots.
ii. Diplomatic agreements open the market for Chinese cars to several
new countries.
iii. Consumers learn that cars will be much more heavily taxed starting
with next year’s models.
iv. House-building companies are gloomy about new business during the
recession.
v. The government places more regulations on food preparation after
several poisoning scares.
vi. A maker of mp3 players moves production to a country with
significantly lower labour costs.
vii. A severe winter frost decimates the crop of grapes from which French
champagne is made.