Question

DSPQ Graphing – Starting from a point of market equilibrium, please graph, analyze, and provide the answer key the following scenario: Market – Sugar Event – There is a decrease in the price of coffee. Your analysis (in paragraph form) should include: Does the scenario affect D or S? Why? Which specific determinant and relationship? How does it shift the schedule? What are the resulting outcomes?

Answer 1

Answer;

As the result of decrease in the price of coffee, the demand for sugar increases.

Sugar and Coffee are complementary goods, Complementary goods are those goods, decreases in the price a good increases the demand for its complement.

The specific determinant is price of related goods (Complementary good; coffee), increase in the price of a good reduces the demand for its complement and vice versa.

The demand curve of sugar increases, the demand curve shift to the right.

The quantity increases and price also increases.

This is shown in the following figure;

In the above figure, x-axis shows quantity and y-axis shows price .D is the demand curve and S is the supply curve. As the result of decrease in the price of coffee, the demand for sugar increases, the demand curve shift to the right. The quantity increases from q to q1 and price also increases from p to p1.