Demand and Supply

2. Use the process of comparative statics to analyse the following changes in market conditions for the apple market in a capital city (Hint: You are analysing general market condition assuming a competitive market).

a) In the aftermath of a global pandemic the economy falls into a deep recession reducing consumer income. (3 Marks)

b) There is a rise in the price of the raw food ingredients by 25%. (3 marks)

Elasticity

3.You are in the food truck industry in a capital city.You discover a new way to organise the preparation of ingredients that decreases the cost and increases the number of serves per day. You believe this will enable the business to reduce the price of a serve of curry from $15 to $10. It is estimated that the price elasticity of demand for food truck cuisine is -1.5. What will happen to total revenue if the price of a curry per serve is decreased? Should you decrease the price of the curry?(4 Marks)