Answer to Question #230104 in Microeconomics for Beyonce

Question

Use diagrams to illustrate the impact of each of the following on the demand curve and the equilibrium price and quantity of sasko bread

i. An increase in consumers taste for fat cakes

ii. An expected increase in the pice of flour

Answer 1

Solution:

i). An increase in consumer’s taste for fat cakes will result to an increase in the consumer’s demand for sasko bread. This will shift the demand curve to the right, hence the equilibrium price and quantity for sasko bread will increase. The equilibrium point will shift from E₀ to E₁ on the demand curve.

 

This is shown by the below demand curve graph:

 

 

ii.). An expected increase in the price of flour will result in an increase in the cost of production of sasko bread. Therefore, the supply of sasko bread will decrease resulting in a leftward shift in the supply curve of bread. As such, the new equilibrium price of sasko bread will increase, while the equilibrium quantity will decrease.

At the same time, the increase in prices of sasko bread will lead to a drop in the quantity demanded since many consumers will not be able to afford the additional prices.

 

This is displayed by the below demand and supply curve graph: