Question 3 [21]

3.1. Draw a typical demand and supply diagram that illustrates equilibrium. (2)

3.2. Refer to the diagram and briefly explain what the difference is between a shift of the

supply curve and a movement (or slide) along the supply curve. (2)

3.3. Indicate four (4) factors of which the determinants/variables will cause a shift of the

supply curve. (2)

3.4. Indicate which single determinant/variable will cause a movement (or a slide) on the

supply curve. (1)

3.5. Briefly explain what a market shortage is. On the diagram that you have drawn for

Question 3.1 (or by drawing a new diagram if you prefer), clearly indicate where a

market shortage will be and illustrate what happens to price and quantity. (3)

3.6. Briefly explain what a market surplus is. On the diagram that you have drawn for

Question 3.1 (or by drawing a new diagram if you prefer), clearly indicate where a

market surplus will be and illustrate what happens to price and quantity. (3)

3.7. Refer to page 59 of the textbook (Example 2.5) depicting the US market for wheat as

it was in 1981. Suppose that by the start of 2020, the total demand for wheat in the

United States of America (US) has changed to QD = 3 244 - 283P and the domestic supply has changed to Qs = 1 944 + 207P. At the end of 2020, both South Africa and

Zambia opened their wheat markets to US farmers.

Suppose that these new markets added 200 million bushels of wheat to the US wheat

demand.

What will be the free-market price of wheat and what quantity will be produced and sold

by US farmers?

Tip: Indicate what the new demand curve will be, find the new equilibrium price and

substitute this price in either the demand or supply equation. (8)