Principles of economics for accountants

Principles of economics for accountants 1
Principles of economics for accountants
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Principles of economics for accountants 2
Question 1a
Figure 1.1 Market for fresh food
The diagram above represents the change effects in the change of prices in the food
commodities in terms of quantity demanded and supplied. From the curve, it is evident
that POQ0 is the point when the quantity supplied is equal to the quantity demanded. In
cases where the fuel prices lead to an increase in the price of commodities, P2, the
quantity demanded is reduced to Q1. Moreover, at the same increased price p2, the
quantity supplied increases to Q2. In similar cases, when the price is reduced, the
quantity demanded rises, and the quantity supplied reduces to Q1.
From the above graph, it is clear that an increase in the price of fuel leads to an increase
in the prices of food commodities. The above is explained by the fact that an increase in
fuel prices means that transporters will incur extra costs to transport food commodities
to the market. To keep operating, the costs are passed on to the buyer. In the end,
suppliers charge higher prices for their products, which means that customers will be

Principles of economics for accountants 3
charged highly for the different goods supplied at a higher price. In summary, an
increase in the prices of fuel leads to expensive supply chain, which translates into an
increase in prices of the different goods. The above is explained by the fact that all fresh
foods are transported daily from gardens to the market place. Therefore, an increase in
fuel prices means an increase in the cost of transport.
Question 1b
Figure 1.2 Market for fresh food
From the curve above, From the above curve, it is clear that a change in the tastes among
customers leads to a shift in the demand curve to the left (D1) while the demand of other
food products which are not fresh shifts to the right (D2). On the other hand, the supply of
fresh foods also shifts to on leftwards (s1) with a change in the tastes and the supply of