Answer to Question #308034 in Microeconomics for MZSEL

Question

1. Explain the difference between decrease in demand and decrease in quantity demanded, and using any product of your choice, briefly explain three factors that can cause decreases in demand for that product. 

2. Explain the difference between a price ceiling and price floor. Use two popular examples with well-labelled diagrams to explain.

3. Assuming that the market for Frytol cooking oil is currently in equilibrium (Demand equal supply). Briefly explain with aid of well-labeled diagrams how the following events will affect the equilibrium price and quantity of Frytol (in each case, start from a new equilibrium). 

a) Average incomes fall due to COVID-19. 

b) It is discovered that Frytol oil is good for adults.

c) A tax of 1.75% is place on Frytol. 

Answer 1

1.It is necessary to distinguish between a change in the volume of demand and a change in demand. A change in the volume of demand occurs when the price of a product changes and the dependence of the quantity demanded on the price remains unchanged. For example, there was an increase in the income of buyers or an increase in the price of a substitute product.

2.The price of the "ceiling" limits the price growth - this is an artificially low price. The price of the "floor" does not allow the price to decrease - this is an artificially high price.

3.

a)demand will fall and then supply will fall

b)demand will increase and then supply will increase

с)demand goes down and then supply goes down