Answer to Question #196760 in Microeconomics for Rauna Ndeshihafela

Question

A survey by Namibian statistics agency indicated that kapana is Namibian favourite. For each of the following, graphically indicate the possible effects on demand, supply or both as well as equilibrium quantity of kapana.

(a) a severe drought in Namibia causes farmers to reduce the number of cattle in their herds by a third-quarter of their stock . These farmers supply need that is used for kapana meat .

(b) a new report by the veterinary council of Namibia reveals that kapana does in fact have significant health benefits

(C) the discovery of cheaper animal feed by Neudamm Bush-to-feed that lower the price of cattle

(d) New technology that lower cattles cost of producing

Answer 1

(a) As meat is required for the supply of Kapana, and drought has reduced the cattle population to 3/4th, thus the supply for Kapana would reduce shifting the supply curve to the left from S1 to S2.The equilibrium quantity of Kapana would reduce from Q1 to Q2 while the equilibrium price of Kapana would increase from P1 to P2

(b)Because of the new report stating significant health benefits, the demand for Kapana will increase and it will shift the demand curve towards the right from D1 to D2.The equilibrium price will rise from P1 to P2 while the equilibrium quantity will increase from Q1 to Q2

(c)Due to the discovery of a cheaper animal feed, the supply of the product will become cheaper and the producers can now supply a larger quantity at the same price. Thus, the supply curve will shift rightward from S to S1.This leads to a drop in equilibrium price of Kapana from P to P1 and an increase in the equilibrium quantity from Q to Q1

(d) Due to reduced cost of cattle production as a result of New technology,the supply of Kapana would increase from S to S1. Consequently,the equilibrium price will reduce from P to P1 and the equilibrium quantity will increase from Q to Q1