BECO011 Economics for Business
Tutorial Week 1: Law of Demand and Supply and Market Equilibrium
BECO011 Week 1 Worksheet
Tutorial B – Shifts and Demand and Supply - Market Equilibrium
Imagine you own an avocado farm in the regional New South Wales. The price of avocado is dependent on the interactions between market demand and market supply of avocados. Analyse what will happen to the equilibrium price of avocados when one of the following happens.
1. Growing interest in healthy eating and superfoods which increases avocado’s popularity
2. Increases in the cost of inputs such as fertilizers, pesticides and labour cost
3. Fall in the price of avocado substitutes (e.g.olive oil or cottage cheese)
4. Rise in the price of avocado complements (e.g bread and toast)
5. Improvement in farming techniques, irrigation and pest control that results in higher avocado yield
Task 1 (10 minutes)
For the avocado market, determine whether the change affects the (i) demand curve or the (ii) supply curve, and specify the direction of the shift in response to the following scenario. An example has been shown in the table.
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Group No
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Scenario
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Demand/Supply
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Right / Left
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Example
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Rise in household income (avocado is a normal good)
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Demand
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Right
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1
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Growing interest in healthy eating and superfoods which increases avocado’s popularity
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2
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Increases in the cost of inputs such as fertilizers, pesticides and labour cost
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3
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Fall in the price of avocado substitutes (e.g.olive oil or cottage cheese)
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4
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Rise in the price of avocado complements (e.g bread and toast)
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5
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Improvement in farming techniques, irrigation and pest control that results in higher avocado yield
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Task 2 (15 minutes)
For each scenario above, please do the following
1. Depict the initial market equilibrium by illustrating the intersection of the market demand curve and the market supply curve within the same diagram.
2. Label the equilibrium price on the vertical axis and the equilibrium quantity on the horizontal axis.
3. In the same diagram, demonstrate the shift of either the demand or supply curve for each scenario
4. Describe the disequilibrium that results after the shift
5. Explain how price will adjust accordingly to restore equilibrium in the market
6. Report the changes in the new equilibrium price and quantity.
Task 3 (15 minute sharing session)
Choose a representative from your group. Share your answers with other students by doing a 2-minute presentation to the whole class.
Activity 2
Recap and Review (20 minutes)