6. Market research has revealed the following information about the market for chocolate bars: The demand schedule can be represented by the equation QD = 1600 – 300P, where QD is the quantity demanded and P is the price. The supply schedule can be represented by the equation QS = 1400 + 700P, where QS is the quantity supplied.
a. Calculate the equilibrium price and quantity in the market for chocolate bars. Graph the demand and supply curves on a fully labelled graph and clearly label the equilibrium price and quantity.(8 marks)
b. Say that in response to a major industry ad campaign, the demand schedule for chocolate bars shifted to the right, as represented by the equation QD = 1800 – 300P. What happens to the equilibrium price and quantity of chocolate bars in this case? Graph the new demand and original supply on a fully labelled graph and indicate the new equilibrium.(8 marks)
c. Returning to the original demand schedule, say that the price of cocoa beans, a major ingredient in the production of chocolate bars, increased because of a drought in sub-Saharan Africa, a major producer of cocoa, changing the supply schedule to
QS = 1100 + 700P. What happens to the equilibrium price and quantity in this case? Graph the original demand and new supply curves on a fully labelled graph and indicate the new equilibrium.(8 marks)