Answer to Question #227051 in Microeconomics for LASHLEY

Question

In a certain market, the demand for peach was given as QD = 400 -3P, the first
day of marketing in 2020, in August 2020, the demand for peach is now given
as QD = 200 -3P. From the statement above tell in one sentence the change in
demand; what did you consider as the indicator? Write down any five factors
responsible for the change in demand. Support your answers by sketching the
equations above on the same graph. CR,10 Marks
b)
Describe the equilibrium condition of a consumer who consumes Kenkey
and fish when faced with a given income and relative prices of the goods.
Starting from equilibrium, how would the consumer respond to:
i. A rise in the price of kenkey?
ii. A fall in the price of fish?

Answer 1

a)

The change in demand for peaches could be due to many possibilities, the most appropriate could be the change in the tastes and preference of the consumer as in August there is monsoon, so people might not prefer to eat peaches in monsoon. 

The factors affecting demand are:

• Income of the consumer
• Taste and preferences
• Related Good's Price i.e. Price of Complements
• Population

For plotting the demand curve, 

QD=400-3P

When P=0, Qd = 400

and when Qd = 0 then Price = 133.33 .

Thus AB represents the initial demand curve.

QD=200-3P

When P=0, Qd = 200

and when Qd = 0 then Price = 66.66

Thus CD represents the demand curve with change in demand shown by downward shift in the demand curve. 

b)

The equilibrium conditions of a consumer who consumes Kenkey and fish when faced with a given income and relative prices of the goods are as follows:

1.). The marginal utility per dollar must be the same for both commodities.

2.). The marginal utility decreases when consumption increases.

The consumer will attain a stable equilibrium when he is able to consume the most preferred product bundle which gives him the highest utility.

 

i.). When the price of kenkey rises, the consumer will respond by purchasing more fish than kenkey since the price of fish will remain constant while the price of kenkey will be more expensive. This is due to substitution and income effects.

 

ii.). A fall in the price of fish will make the consumer respond by purchasing more fish than kenkey since the price of fish will be more affordable and hence the consumer will be able to purchase more of it and less kenkey due to substitution and income effect.