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From the scenario for Katrina’s Candies, examine the key factors affecting the demand for and the supply of a good in general and Katrina’s Candies specifically Answer

Fundamental Economic Concepts” Please respond to the following: From the scenario for Katrina’s Candies, examine the key factors affecting the demand for and the supply of a good in general and Katrina’s Candies specifically.

Answer – The key factors affecting the demand for a good in general and Katrina’s Candies specifically are:-

    1. Price of substitute goods – Substitute goods are the ones which can be used in place of the similar other good. For eg, Tea and coffee are substitute of each other. If the price of substitute goods rises, then it will lead to rise in the demand of other good. Similarly, if the price of the substitute of Katrina’s candy rises, then it will lead to rise in the demand of Katrina’s candies.
    2. Price of complementary goods- complimentary goods are the one which are used with the consumption of the other good. For example car and petrol are used side by side. Similarly, Katrina’s candies are used with the other complementary good such as chocolate shake or strawberry shake. When the price of complementary goods rises, the quantity demanded of the other good falls.
    3. Income – When the income of an individual rises, the quantity demanded of Katrina’s candy rises because people can afford more of candies now at same price.
    4. Preference or tastes, advertising expenditures – As preferences or tastes of an individual changes towards Katrina’s candy and more people would like to buy Katrina’s candy, then the quantity demanded of Katrina’s candy will rise.
  • Number of buyers – As the number of buyers in the market for a particular product increases, there will be rise in the quantity demanded of the candy.

 

Distinguish between a change in demand and a change in the quantity demanded (movement along the demand curve). From the above, indicate the factors that are responsible for a shift in demand; and explain how the change is effected by these factors.

Answer – Change in demand consists of two things –

  1. Change in quantity demanded
  2. Change in demand.Change in quantity demanded means when there is change in price of the Katrina’s candy, then there is movement along the demand curve. Only factor affecting the quantity demanded is the price, keeping other things constant. Next is change in demand, it means that there is change in demand of a Katrina’s candy due to other factors affecting demand such as:-

The price of the sugar-free chocolate;

The price of caffeinated coffee;

The price of water;

The median income of consumers; and

PRICE

The number of buyers in the market.

 

PRICE
QUANITY
SHIFT IN THE DEMAND CURVE
QUANTITY
MOVEMENT ALONG THE SAME DEMAND CURVE

Indicate the factors that are responsible for a shift in supply; and explain how the change is affected by these factors.

Answer – Shift in supply of Katrina’s candy will occur only when there is change in the factors affecting supply of the good other than price.

Factors such as change in costs such as change in labor or raw material costs will shift the position of the supply curve.

If costs rise, then there will be less production at any given price and the supply curve will shift to the left.

However, if there is fall in the costs of production then more quantity will be produced at the same price.

Other factors affecting the supply of the candy are such as change in the availability of factors, or changes in weather, taxes and subsidies will shift the supply curve to the right.

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