Question

short answers -

1.The demand for cabbage is price inelastic. Suppose there is a drought that destroys a large portion of the cabbage crop.  

(a) What will happen in the market for cabbage? Will the equilibrium price and quantity change?

(b) What will happen to the total revenue earned by cabbage farmers?

2.The market for Chicken Rice in Selangor is currently in equilibrium at a price of RM8 and 2,000 packs are sold each day. Explain what will happen to the equilibrium price and quantity of chicken rice sold and why (which curve has changed) for the following situation:

Delivery personnel form a labor union and secure a higher wage of

RM7.50 per hour (a large increase in their wage).

Answer 1

1. inelastic Demand means when change in demand is less than change in price means there is a shortage of the product or the product has less substitutes.

(a) The market of the cabbage will fall the demand of the cabbage will increase rapidly. the equilibrium price and quantitty will fall. The supply of cabbage will decrease due to drought but demand will incearse as there are no close substitute for the cabbage and price will aslo increase.

(b) The total revenue earned by selling will decrease as there will be less or no supplu due to the scarcity of producing the cabbages due to drought.

2. The price decreased from 8 to 7.5 due to higher wage rate so the demand will also decrease. The demand curve will shift downward and the supply curve will aslo move leftward so the equilibrium point also moves downward.