Market Equilibrium and Effects of Price Changes on Kombucha

QUESTIONS & ANSWERS 1
QUESTIONS & ANSWERS
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1) The market for Kombucha is represented by the following equations:
Qd= 90-2P
Qs=P
Considering the fact that Qs=Qd
P=-2p + 90
90=p+2p
90=3p
Thus the equilibrium price which is represented by p=30
When the price is substituted for our initial supply function in order to obtain Qs,
Qs=p
Qs=30
This implies that the equilibrium quantity = 30
b. What if the price is $20? What will Qd and Qs be?
If P is equal to $20
When p is substituted into the functions it reads as below;
Qd=-2p +90
= - (20*20) + 90
= -40 +90
=$50
Qs is equal to p; hence,

QUESTIONS & ANSWERS 2
Qs =$20
c. If the market price was $20, would there be a surplus or a shortage in the market?
There would have been a shortage in the market if the market price had been set at $20.This
is in consideration to the fact that the quantity supplied would have increased to make the
quantity supplied less than the demanded quantity in the market. Also, most suppliers would
have been reluctant in supplying their goods at such low prices further contributing to
escalated shortages (McKenzie, 70).
Illustrate your answer in a graph showing a demand curve, a supply curve and the market
price and effect of that price. Be sure to specify if there are changes in DEMAND or QTY
DEMANDED, SUPPLY or QTY SUPPLIED and show the changes on the graph to match
your answers.
Prices Supply2
Supply1
Price1
Price2
D2
D1
Quantity2 Quantity1 Quantity
The decline in prices has made the demand to increase from D1 to D2. The increased demand
is the reason behind the shortages in demand than supply. The prices have also declined from
the equilibrium $30 to $20.

QUESTIONS & ANSWERS 3
d. Given your answer in part c, would you expect the price to rise or fall in order to find
equilibrium? Explain your reasoning.
Prices will increase.
In order to get the equilibrium, the price will have to rise. This is because the price as
indicated in the graph is lower than the equilibrium price. The fall in prices causes most
supplies to stop supplying their goods because they evade losses incurred due to low prices.
When prices are increased the equilibrium price will increase and this will motivate suppliers
to supply their goods to the market because they are able to obtain profits from the firms
(McKenzie, 60)
e. On the same graph or a new one if you prefer, show what would happen if medical
testing showed that drinking Kombucha caused excessive weight gain and terrible breath
too. Point out what you think would be the end result in regards to price and quantity.
P2
P1
V Q2 Q1 quantity
If medical testing showed that drinking Kombucha caused excessive weight gain and terrible
breath too most of the people or consumers will stop using Kombucha because of the