Question 4[20]

4.1.It is important to differentiate between a change in quantity demanded versus a change in demand. Using a diagram, illustrate and explain an increase in the price of the product. Clearly state whether a price increase will cause a change in quantity demanded or a change in demand.(4)

4.2.Equilibrium is the condition in the market system when the quantity demanded is equal to the quantity supplied. Given the definition of equilibrium, answer the following questions:

4.2.1.Calculate the equilibrium quantity and price if the quantity supplied can be represented by the equation Qs= 18000 + 0.2Pand the quantity demanded can be represented by the equation Qd= 2400 -0.1P. [Tip: Solve the value of P first and then substitute this P-value in the calculation of the Q-value.](4)

4.2.2.Based on your answer in 4.2.1, draw a graph to illustrate market equilibrium. Clearly indicate equilibrium quantity and price.(4)

4.3.In the market for milk, Nesquik is considered as a complement product and Cremora as a substitute product.4.3.1.Draw a graph to illustrate how a decrease in the price of Cremora will affect the equilibrium price and quantity in the market for milk.(6)

4.3.2.Explain how a change in the price of Nesquik can lead to the same effect in the market for milk as indicated in 4.3.1.(2)Question 5[15]5.1.Suppose that the price of whiskey increases from R100 to R150 a bottle and as a result the quantity demanded decreases from 1100 bottles to 800 bottles.

5.1.1.Use the ARC (midpoint) formula to calculate the price elasticity of demand for whiskey.(3)

5.1.2.Based on the calculated elasticity value in 5.1.1, indicate whether the demand in the market for whiskey is elastic or inelastic.(1)

5.1.3.Based on your answer in 5.1.2, illustrate the elasticity of demand in the market for whiskey. Clearly indicate the correct percentage changes in price and quantity on the elasticity graph.(4)

5.1.4.Explain how producers could increase total revenue given the calculated elasticity