Question

Draw a demand-supply graph.

During Valentine’s week, more people buy chocolates and chocolatiers offer their chocolates in special red boxes, which cost more to produce than the everyday box. Set out the three-step process of analysis and show on a graph the adjustment process to the new equilibrium. Describe the changes in the equilibrium price and the equilibrium quantity.

Answer 1

step 1- Demand for chocolate is increased as more people buy chocolate during Valentine's week. So demand curve shifts to right. As a result, the price will be increased. Quantity will be increased.

step 2- As the cost of producing special red box increases, the producer will supply less. So the supply curve shifts to left. As a result, the price will be increased. But quantity will be reduced.

step 3- In both case price is increased. So consumers have to pay more for less quantity.

New equilibrium price is P3 and quantity is Q3.