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Eco 415 Assignment 1

Market equilibrium occurs where supply and demand for a good meet at a single price. For chicken in Malaysia, the government sets the price at RM4.70/kg, matching supply of 1.4 million chickens/day and demand. As the festive season approaches, demand increases to 1.5 million chickens/day, shifting the demand curve right and raising the new market equilibrium price and quantity to P1 and Q1. Chicken supply is influenced by seller expectations of future prices, input prices like food and chicks, and the number of sellers in the market. If more import permits are issued, increased supply would lower the equilibrium price. Demand factors include income levels, as chicken is a normal good, and tastes

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2K views

Eco 415 Assignment 1

Market equilibrium occurs where supply and demand for a good meet at a single price. For chicken in Malaysia, the government sets the price at RM4.70/kg, matching supply of 1.4 million chickens/day and demand. As the festive season approaches, demand increases to 1.5 million chickens/day, shifting the demand curve right and raising the new market equilibrium price and quantity to P1 and Q1. Chicken supply is influenced by seller expectations of future prices, input prices like food and chicks, and the number of sellers in the market. If more import permits are issued, increased supply would lower the equilibrium price. Demand factors include income levels, as chicken is a normal good, and tastes

Uploaded by

capeto01
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Assignment 1 Question 1 a) Market equilibrium occurs at a price agreed upon by both buyers and sellers at a same time.

It is a price at which buying and selling take place. This price is established after a process of bargaining between the sellers and the buyers. For example, in the articles saying that the farm price of RM4.70 per kg is imposed at early beginning of fasting month. It is not market equilibrium price but a seller price. If I agree to buy it, then it will be market equilibrium price. In other words, the quantity demanded equals the quantity supplied. This happens when demand and supply curves intersect each other.

In this case, demand for chicken is less than 1.4 million per day. The local farms produce between 1.4 million to 1.5 million per day. The government has determined the price of chicken at RM4.70 per kg. At first market equilibrium (during beginning fasting month), quantity demanded and quantity supplied curves intersect each other at quantity of chicken 1.4 million and at price RM 4.70 per kg. As festive season comes at the end of fasting month, the quantity demanded of chicken will be increase and the local farm ready to supply chicken to 1.5 million per day. Thus, the demand curve will shift to the right from Do to D1. As a result, the equlibrium price and the quantity both rise to P1 and Q1 respectively.

b)

In this case, demand for chicken is less than 1.4 million per day. The local farms produce between 1.4 million to 1.5 million per day. The government has determined the price of chicken at RM4.70 per kg. At first market equilibrium (during beginning fasting month), quantity demanded and quantity supplied curves intersect each other at quantity of chicken 1.4 million and at price RM 4.70 per kg. As festive season comes at the end of fasting month, the quantity demanded of chicken will be increase and the local farm ready to supply chicken to 1.5 million per day. Thus, the quantity demanded curve will shift to the right from Do to D1. As a result, the equlibrium price and the quantity both rise to P1 and Q1 respectively.

c) Three factors that may influence the supply of chicken in the domestic market.

1.Sellers expectations about future price. - If the price is expected to be increase in future, the local farm may hold back some of the chicken today. They want to build his stock to take advantage of the higher price in the future, at which time he will sell. 2. Resources Prices - Resources are inputs needed to produce a good. Resources for chicken is the food and small chicken. When the price of resources increase, it also will raise the production cost. Thus, the supply of chicken will fall down. 3. Number of Seller -When there are more people selling a chicken, the supply of chicken will be increases. Thus the supply curve will shift to the right. However, the price of chicken will fall and there will be a number of farmer will leave the industry as profit decrease. As the farmer leave the industry, the supply curve will shift to the left,

d)

If the government issues more permits to import chicken, the supply will be increase and make supply curve shifted to the right. As a result, an equilibrium price falls to P1 and the quantity rises to Q1.

e) Two possible factors that may influence the demand for chicken.

1. Income As income increase, the quantity demanded for chicken will be increase because people affordable to buy more chicken. Furthermore chicken is a normal good because it is a main meat used in cooking by Malaysian. Thus, the demand curve will shift to the right. 2. Tastes and Preferences When an epidermic of bird flu happen for a few years ago, the quantity demanded for chicken is fall. People afraid to eat chicken and seek other alternative like meat and fish. Thus, the demand curve will shift to the left.

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