Microeconomic

LD | A T Consider Figure 1 below, which depicts the rubber market in Malaysia. At the initial market equilibrium, the total quantity produced is 500 kg per year and the average price is RM7 per kg. Figure 1: Market equilibrium in the Malaysian rubber market Average Price RM10 RM7 Quantity of rubber (kp) 500 1000 (a) A sudden increase in demand for rubber causes the demand schedule to shift from D to D'. Explain the adjustments in prices and quantity that would take place after the increase in demand (10 marks) (b) Calculate the price elasticity of supply for rubber, and comment on the degree of elasticity (10 marks) Figure 2: Fall in supply due to weather conditions Average Price RM17 RM10 D' Quantity of rubber (kp) 600 1000 (c) There is a sudden and drastic change in weather conditions, causing supply of rubber to fall from S to S' (Figure 2 above). Compute the price elasticity of demand, and comment on the degree of elasticity (10 marks)