Gemil P.

Gomez

Assignment Chapter 4
Question 1 (10)
Explain each of the statements using the supply and demand curve:
a. When a cyclone hits Queensland, the price of bananas rises in supermarkets throughout
Australia.

SUPPLY AND DEMAND CURVE OF BANANA

$50.00

$45.00

$40.00

$35.00
PRICE OF BANANAS

$30.00

$25.00

$20.00

$15.00

$10.00

$5.00

$0.00
0 10 20 30 40 50 60 70 80 90 100 110 120
QUANTITITY OF BANANAS (KG)

SUPPLY DEMAND SUPPLY DECREASES

Cyclone is one of the determinants that affect the shifting of supply curve to left. When a cyclone
struck Queensland, there was decrease in supply. This can be seen as a shift to the left in the
supply curve for bananas. As an effect, price increases and the quantity decreases. The demand
will just stay the same.
 b. On Tuesdays, picture theaters discounts tickets.

SUPPLY AND DEMAND CURVE OF PICTURE THEATRE

TICKETS
$20.00

$18.00

$16.00
PRICE ($) PER CINEMA TICKET

$14.00

$12.00

$10.00

$8.00

$6.00

$4.00

$2.00

$0.00
1 2 3 4 5 6 7 8 9 10

QUANTITY OF PICTURE THEATRE TICKETS ('000)

SUPPLY DEMAND DEMAND DECREASES

Movie tickets are cheaper on Tuesday because consumer demand for movie tickets is less on
Tuesday than it is on the weekends. Therefore, the movie theater lowers the price to compel
people to buy a ticket on Tuesday who would not normally do so at regular price. This will shift
the demand curve to left; thus, lowering the price. Discount price will be based on the
equilibrium 2(E2) as shown in the graph. Supply will just be the same.
 c. When a war breaks out in the Middle East, the price of petrol rises and the price of a used
Ford Falcon falls

SUPPLY AND DEMAND CURVE OF OIL

$50.00
$45.00
$40.00
PRICE OF OIL(US DOLLARS)

$35.00
$30.00
$25.00
$20.00
$15.00
$10.00
$5.00
$0.00
1 2 3 4 5 6 7 8 9 10
QUANTITY OF OIL (CUBIC METER)

SUPPLY SUPPLY DECREASES DEMAND

50% of oil comes from Middle East countries. If there is a war present in that region, supply of
crude oil will be lessened. This would cause a left shift of the supply curve resulting to an
increase in price.

SUPPLY AND DEMAND CURVE FOR FORD FALCON

$50.00
$45.00
$40.00
$35.00 If crude oil is
$30.00 expensive,
$25.00 then people
PRICE

$20.00 will look for

$15.00 alternative
$10.00 forms of
$5.00
$0.00
1 2 3 4 5 6 7 8 9 10
QUANTITY/UNITS('000) OF FORD FALCON

SUPPLY DEMAND DEMAND DECREASES

transport. If one buys a car, its complementary product is oil. Since oil is very high, people will
not buy cars and may continue to buy bus tickets and cycle to work. Therefore, there will be
less demand for ford falcons and the price will fall resulting in a shift to the left of the supply
curve.

Question 2 (15)

Using supply and demand diagrams, show the effect of the following events on the market of
wool jumpers
a. an outbreak of foot-and-mouth disease hits sheep farms in New Zealand( decrease supply
and decrease demand)
Food and mouth disease is a highly contagious disease. Any animals/animal part (i.e.
wool) could spread the disease. As an effect, consumers would not choose wool jumpers
(decrease demand) since this would pose threat in their health and producers will not
manufacture the product since it’s contagious.
 SUPPLY AND DEMAND OF WOOL JUMPER
$70.00
$65.00
$60.00
$55.00
PRICE OF WOOL JUMPER EACH ($)

$50.00
$45.00
$40.00
$35.00
$30.00
$25.00
$20.00
$15.00
$10.00
$5.00
$0.00
1 2 3 4 5 6 7 8 9 10

QUANTITY OF WOOL JUMPER

SUPPLY DEMAND
SUPPLY DECREASES DEMAND DECREASES

b. the price of leather jackets falls (decrease demand)

Leather jacket is a substitute product for wool jumper. As the price of substitute falls, the
demand for the good increases. As an effect, the other product’s (jumper) demand will
decrease.
 SUPPLY AND DEMAND CURVE OF WOOL JUMPER
$60.00
$55.00
$50.00
PRICE OF WOOL JUMPER EACH($)

$45.00
$40.00
$35.00
$30.00
$25.00
$20.00
$15.00
$10.00
$5.00
$0.00
1 2 3 4 5 6 7 8 9 10
QUANTITY OF WOOL JUMPER

SUPPLY DEMAND DEMAND DECREASES

c. Rihanna appears in a wool jumper in her latest video (increase demand)

Rihanna is one of the biggest stars today and can influence people’s taste. She has a lot of
fans. As the people see the wool jumper worn by Rihanna, the demand will increase.
 SUPPLY AND DEMAND OF WOOL JUMPER
$75.00
$70.00
$65.00
PRICE OF WOOL JUMPER EACH ($)

$60.00
$55.00
$50.00
$45.00
$40.00
$35.00
$30.00
$25.00
$20.00
$15.00
$10.00
$5.00
$0.00
1 2 3 4 5 6 7 8 9 10
QUANTITY OF WOOL JUMPER

SUPPLY DEMAND DEMAND INCREASES

d. New knitting machines are invented (increase supply).

New knitting machines can increase production; thus, increasing the supply in the curve.
This will shift the supply curve into right.
 SUPPLY AND DEMAND OF WOOL JUMPER
$55.00

$50.00

$45.00

$40.00
PRICE OF WOOL JUMOER ($)

$35.00

$30.00

$25.00

$20.00

$15.00

$10.00

$5.00

$0.00
1 2 3 4 5 6 7 8 9 10

QUANTITY OF WOOL JUMPER

SUPPLY DEMAND SUPPLY INCREASES