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BUSINESS ECONOMICS (BUECO5903) - MICROECONOMICS ASSIGNMENT
Lecture: Student Number: Student Name: Date:
Question 3: What will happen to the equilibrium price and quantity of butter in each of the following cases? Illustrate with a diagram and explain whether demand or supply (or both) have shifted and in which direction. (In each case, assume ceteris paribus). (a) A rise in the price of magarine; (1 mark) (b) A rise in the demand for yoghurt; (1 mark) (c) A rise in the price of bread; (1 mark)
(d) A rise in the demand for bread; (1 mark)
(e) An expected rise in the price of butter in the near future; (1 mark) (f) A tax on butter production; (2.5 marks) (g) The invention of new, but expensive, process for removing all cholesterol from butter, plus the passing of a law which states that all butter producers must use this process. (2.5 marks)
Answer (a) A rise in the price of magarine; Margarine and butter are substitutes. A rise in the price of margarine will cause people use margarine less and butter more. Consequently the demand for butter curve will shift right from D0 to D1. Resulting in increase in the equilibrium price and quantity of butter from P0 to P1 and Q0 to Q1.
Diagram (a) (b) A rise in the demand for yoghurt; Yoghurt and butter are not substitutes. A rise in the demand for yoghurt will not cause any shift of the demand for butter or the supply of butter curve. The equilibrium price and quantity of butter will not change.
Diagram (b) (c)A rise in the price of bread Assuming that people apply butter on their bread.A rise in the price of bread will cause people buy less bread following a leftward shift on the
Lecture: Student Number: Student Name: Date:
Question 3: What will happen to the equilibrium price and quantity of butter in each of the following cases? Illustrate with a diagram and explain whether demand or supply (or both) have shifted and in which direction. (In each case, assume ceteris paribus). (a) A rise in the price of magarine; (1 mark) (b) A rise in the demand for yoghurt; (1 mark) (c) A rise in the price of bread; (1 mark)
(d) A rise in the demand for bread; (1 mark)
(e) An expected rise in the price of butter in the near future; (1 mark) (f) A tax on butter production; (2.5 marks) (g) The invention of new, but expensive, process for removing all cholesterol from butter, plus the passing of a law which states that all butter producers must use this process. (2.5 marks)
Answer (a) A rise in the price of magarine; Margarine and butter are substitutes. A rise in the price of margarine will cause people use margarine less and butter more. Consequently the demand for butter curve will shift right from D0 to D1. Resulting in increase in the equilibrium price and quantity of butter from P0 to P1 and Q0 to Q1.
Diagram (a) (b) A rise in the demand for yoghurt; Yoghurt and butter are not substitutes. A rise in the demand for yoghurt will not cause any shift of the demand for butter or the supply of butter curve. The equilibrium price and quantity of butter will not change.
Diagram (b) (c)A rise in the price of bread Assuming that people apply butter on their bread.A rise in the price of bread will cause people buy less bread following a leftward shift on the