Figure 3-8
-Refer to Figure 3-8.The graph in this figure illustrates an initial competitive equilibrium in the market for sugar at the intersection of D₁ and S₂ (pointB) If there is a decrease in the price of fertiliser used on sugar cane and there is a decrease in tastes for sugar-sweetened soft drinks, how will the equilibrium point change?

Question

Figure 3-8

-Refer to Figure 3-8.The graph in this figure illustrates an initial competitive equilibrium in the market for sugar at the intersection of D₁ and S₂ (pointB) If there is a decrease in the price of fertiliser used on sugar cane and there is a decrease in tastes for sugar-sweetened soft drinks, how will the equilibrium point change?

Quizplus · Accepted Answer

A decrease in the price of fertiliser used on sugar cane will shift the supply curve to the right (to S1U2B0 from S1U1B0), while a decrease in tastes for sugar-sweetened soft drinks will shift the demand curve to the left (to Ds2U1B11 from Ds1U1B11). These two shifts will cause a decrease in equilibrium price and a decrease in equilibrium quantity. As a result, the new equilibrium point will be at point C, where the new supply and demand curves intersect (SS1U2B0 and DS2U1B11).

Figure 3-8 -Refer to Figure 3-8.The Graph in This Figure Illustrates an Figure