Question

(3)Use appropriate graphical illustrations to show how each of the following affects the equilibrium price and the equilibrium quantity in the market for commodity Z. Explain each diagram. (a) A favorable shift in consumer preferences for this product. (b) A significant increase in the minimum real wage paid for the use of labor resources. (C)A fall in the price of commodity Y considered to be a substitute for commodity Z. (d) A severe weather condition that negatively impacts the production and the supply of commodity Z.

Can you label each one please .

Answer 1

a) The cquilibrium quantity and price of commodity Z is determincd by thc equality of demand and supply. A change either in demand or supply disturbs the market equilibrium and new equilibrium is established either at a higher price and lower equilibrium quantity or at a lower price and higher cquilibrium quantity The change in consumer preference in favour of the commodity Z increases its demand and its demand curve shift to the right. The increased demand increases the equilibrium price and equilibrium quantity Marker for commodity Z Price PI -Quantity Q QI The taste and preference in favour of commodity Z shifts its demand curve right up from D to D Thus the equilibrium price rise from P to P1 and the equilibrium quantity rise from Q to Q1. Here more quantity is traded at a higher price b. The increase in cost of production decreases the supply of Z. The increase in minimum wage for labour increases the cost of manufacturing commodity 7 and reduces the profit margin of the producers. Then the producers of Z will reduce its supply. Then the supply curve shifts the left up. The decrease in supply increases the equilibrium price and decreases the equilibrium quantity Marker for commodity Z Price S P1 Quantity Q1Q The initial equilibrium price and quantity are P and Q respectively. The increased cost of production shift the supply curve to left from S to S1. The equilibrium price

incrcasc from P to P. The cquibrium quantiy dccrcasc from Q lo Q1. Less quantity is tradcd at a higher price. c A substituted good is one which can bee used in place of another to satisfy a particular want. Change in price of substituted goods change demand for commodity Z. For example the good Y is a substitute good for Z. Consumers have same preference on both the goods. Herc a fall in pricc of good Y compels the consumers to substitute good Y in place of good Z. Then the demand for good Z falls and its equilibrium price and quantity decrease. Marker for commodity Z Price Quantity QI Q The market for commodity Z initially is at equilibrium price P and equilibrium quantity QThe fall in price of commodity Y reduce the demand for Z(now commodily Y is chcapcr for consumcrs). Then the demand curve of Z shifls to the left. The decreased demand reduces the equilibrium price to Pl and equilibrium quantity to Q. d) The bad weather creates less supply of the commodity Z. The supply curve shift to the eft and the price increase. Then equilibrium price increase and the equilibrium quantity decrease. Marker for commodity Z Price P l Quantity Q The supply curve shift to the left from S to S1. The equilibrium price rise from P to Pl and the equilibrium quantity decrease from Q to QI.