Question 1

a)Based on the data given in Table 1, explain 'demand', 'demand curve', 'supply', 'supply curve', 'market', 'equilibrium', 'equilibrium price' and 'equilibrium quantity'.Determine the equilibrium price and quantity of potatoes in Week 1.

Table 1. Quantity demanded and quantity supplied of potatoes in week 1

Price (RM) Quantity demanded(kg) Quantity supplied (kg)

2.00 350 150

2.50 300 200

3.00 250 250

3.50 200 300

4.00 150 350

4.50 100 400

5.00 50 450

(Hint: You are required to plot the above demand and supply curves in order to answer the above questions.) (10 marks)

b)Answer the following by plotting new graphs on the diagram in a)

i.Assuming there is no change in the supply, what are expected to happen to the price and quantity traded of potatoes in week 2 when the quantity demanded has increased by 20% at every price? How have the price and quantity changed as compared with week 1?

ii.Assuming that by week 3, the quantity supplied has increased by 10% at every price (demand remains as in week 2), what are expected to happen to the price and quantity traded of potatoes as compared with week 2?

iii.List the market price obtained for weeks 1, 2 and 3.Plot a graph showing the change in price over the three time periods. Identify the cause of change between weeks 1 and 2, and between weeks 2 and 3.

(6 marks)

c)Sketch a diagram representing the market of milk tea that will help in answering the following questions.Explain on what will happen to the market of milk tea if:

i.The cost of milk has increased, ceteris paribus;

ii.To buy milk tea has become a new trend to share, ceteris paribus;

iii.Both (i) and (ii) above happen at the same time.

(6 marks)