Demand, Supply and Market Equilibrium

Demand, Supply and Market Equilibrium

Q 1:

Yesterday, I bought two packets of milk. I have been buying this quantity of milk for the last 6 months. The price of milk has not changed significantly in the last 6 months. Consequently, my demand for the commodity has remained the same. I would reduce my consumption of milk if the commodity’s price increased.

Q 2:                                                                                                             

The TIPEN affect milk by influencing various aspects of consumers’ decisions. For example, a consumer with low income will seek substitutes for milk if the price of the commodity increases. On the other hand, expectations for a future increase in the price of milk will cause a short-term increase in demand for the commodity. The PREST affect milk by influencing aspects of the supply and price of the commodity. For example, the scarcity of milk will cause an increase in the price of the commodity. Similarly, increased milk taxes will cause an increase in the price of the commodity and vice versa. 

Q 3:

A change in one of the TIPEN or PREST determinants will cause the demand and supply curves to shift to the left or right. For example, a decline in the consumers’ income will cause the demand for milk to reduce. Therefore, the demand curve will shift to the left.

Q 4:

A shift in the demand curve for milk will occur when consumers demand a different quantity of the product at a particular price. On the other hand, a movement along the demand curve will occur when consumers demand a different quantity of milk at a different price (Bade & Parkin, 2015).

Q 5:

The intersection of the demand and supply curves gives the equilibrium price and quantity (Sexton, 2012). For example, if the demand curve shifts to the right, the market price will push upwards and demand decrease so that the market attains equilibrium. Fig 1: in Appendix A illustrates the attainment of market equilibrium following a shift in the demand.

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