Economics: Supply and Demand and Quantity

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Question 1
On separate demand and supply diagrams for bread, sketch the effects of the following: Pricewe
Pricewe
(a) a rise in the price of wheat

S1
S1

S
S
Quantity
Quantity

As the sketch shown above the supply curve is shift to the left, the price of the bread rises the
quantity of sold will fall. Wheat is use in a flour to make a bread, therefore if the wheat price goes up
the cost of producing will also increase. Hence the shift of the supply curve is to the left.

Price
Price
(b) a rise in the price of butter and margarine;
Price
Price

D
D
D
D

D
D
D
D
Quantity
Quantity

Margarine
Margarine
Butter
Butter
Quantity
Quantity

As the sketch shown above, the demand curve will shift to the left. This shows that the price of the
bread will fall when the quantity sold falls. Butter and margarine is a complementary goods for bread.
If this butter and margarine increase they price, the combination of butter and margarine and the
bread will be less consumed.

Price
Price
Quantity
Quantity
Price
Price
(c) a rise in the price of rice, pasta and potatoes

D
D
D
D

Pasta
Pasta
Rice
Rice
Quantity
Quantity
D
D
D
D

Price
Price

D
D

D
D

Quantity
Quantity

Potatoes
Potatoes

As the sketch shown above the demand curve will shift to the right, which shows that the price of bread will rise when the quantity rises. Rice, pasta and potatoes is substitutes goods for bread. If this substitutes goods price rises, they will be less purchase than bread.

Question 2
This question is concerned with the supply of oil for central heating. In each case consider whether there is a movement along the supply curve (and in which direction) or a shift in it (and whether left or right).

(a)New oil fields start up in production.
S
S
Price
Price

S
S

Quantity
Quantity

The supply curve will shift to the right. This shows that quantity supplied on oil increases. As the price decreases the quantity of supplied oil increases. Price
Price
(b)The demand for central heating rises.

S
S

B
B

A
A

Quantity
Quantity

Theres a movement along the curve. The movement shows that theres a rise in price when the demand for central heating rises. Oil is an important component for central heating therefore the price rises.

(c)The price of gas falls.
Price
Price

S
S

A
A

B
B

Quantity
Quantity

Theres a movement downward along the curve. This shows that fall in price may affect the fall in demand as people switch to gas-fire central heating.
(d)Oil companies anticipate an upsurge in demand for central heating oil. S
S
Price
Price

S
S

Quantity
Quantity

The supply curve will shift to the left. The price increases when the oil companies anticipate an upsurge in demand for central heating oil.
(e)The demand for petrol rises.
Price
Price

S
S

S
S

Quantity
Quantity

As the demand for petrol rises, the supply curve will be shift to the right. As the price decreases more oil will be supply.

(f)New technology decreases the costs of oil refining.

Price
Price

S
S

Quantity
Quantity

Theres a movement along the supply curve. The movement is going up along the curve, as the new technolgy decrease the cost of oil, the price increase and so as the quantity.

Question 3

For what reasons might the price of foreign holidays rise? In each case identify whether these are reasons affecting demand or supply (or both).

One of the reason that might affect the rise of price of foreign holidays are seasons. As seasons change, the demand and suppy will be affected. Example during the summer season there will be more people travelling, therefore theres a price increase in supply, such as air tickets and transportation. When theres a poor weather at...
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