Question

Using supply and demand analysis explain the effect on the equilibrium price and quantity of 

      lamb meat in country X of each of the following events.

      a) A fall in the price of chickens. 

      b) The introduction of a sales tax on all meat sold.

      c) The imposition of a maximum price (or ceiling price) for lamb. 

Answer 1

a) A fall in price of chicken results to a rise in supply of chicken because of increased number of chicken demanded. The equilibrium price decreases increasing the number of chicken demanded.

b) The introduction of a sales tax on all meat sold results to a higher income of goods causing the equilibrium price to fall and the quantity of meat demanded to reduce.

c) The imposition of maximum price for lamb will lead to a shortage of the lamb. When price ceiling is less than the equilibrium price, the amount of lamb demanded will be more than the the amount of lamb supplied.