Assignment II
1. Using the demand and supply curve, show the effect of the following events on the
market of milk:
(a) Consumer income increase
(b) The price of milk decrease
(c) There is an outbreak of “mad cow” disease
(a) If consumer income increases, demand for milk will increase. Hence, the demand curve
shifts rightward. Equilibrium price and equilibrium quantity both rise.
Price of
milk
S
P2
P1
D2
D1
0
Q1
Q2
Quantity of
milk
(b) If price of milk decreases and become less profitable, supplier will produce less milk. It
leads to leftward shift of supply curve. The demand for milk will increase and demand
curve shifts rightward. Quantity supply is more than quantity demand.
Price of
milk
S2
S1
P2
P1
D2
D1
0
Q1
Q2
Quantity of
milk
(c) An outbreak of “mad cow” disease decreases the demand and the supply for milk. The
supply curve and demand curve both shift leftward. Hence, equilibrium price and
equilibrium quantity both decrease.
S2
Price of
milk
S1
P1
P2
D1
D2
0
Q2
Q1
Quantity of
milk