Microeconomics Analysis: Demand and Supply and the Costs of Production

Running Head: Microeconomics Analysis
Demand and Supply and the Costs of Production
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Microeconomics Analysis 2
Demand and Supply and the Costs of Production
Question 1
No, the demand curve always slopes downwards, the far it can go as far as price and other factors
are concerned is to be horizontal but it cannot slope upwards; a horizontal demand curve means
that it’s perfectly inelastic. The upward sloping curve is the supply curve; the supply curve could
even be vertical when it’s perfectly inelastic.
Fig: Slope and shifting of the demand curve
Supply
P1
P0
D1
D0
Q0 Q1
At equilibrium, Q0 quantity of beef are demanded at price P0. In the normal cases, a price
increment results in demand falling. However, price can rise and the demand still goes up. How
will this happen? If price rises from P0 to p1, demand is expected to fall, however a non-price
factor pushes the demand for beef causing a rightward shift of the demand curve from D0 to D1
(Amadeo, 2018). One of the factor responsible for this could be for instance an increase in the
price for chicken meat a substitute for beef. This will lower chicken demand and raise beef
demand.

Microeconomics Analysis 3
Question 2
Part a
Fig: Impacts of poor wine-grains harvest on the French Wine market
New Supply
Supply
P1
P0
D
Qd Q0 Qs
The poor harvest will cause a shortage shown in the above graph since the supply curve will shift
to ‘New supply curve’; this is a shift from supplying Q0 to supplying Qd (Ctvnews.ca, 2017). A
shortage push the price for French wines upwards (Kottasová, 2017).