Question

The demand for beef tenderloin is very elastic. Draw a diagram that shows how the equilibrium price and quantity change if the supply of beef cattle changes due to severe winter weather. Label the axes and the prices and quantities both before and after the supply change. Graph your answer.

Write a few sentences explaining what happened to prices relative to quantities and why.

Answer 1

The initial equilibrium price and quantity before the supply changes is the Q1 level of output at the P1 price level. Sudden changes in the supply or decrease in the supply of goods hence supply curve shift left side indicating the decreases int he supplies of the goods and results increasing the price and new equilibrium price will be at P2 and Q level of output.

This graph clearly showing he decreasing the supply of goods and increasing the price of the goods while demand remains the same.