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ECS1500 Assignment 3
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ECS1500 Assignment 3
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ECS1500 Assignment3
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[Course title]
, QUESTION 1 Due to an increased advertising effort about the positive effect
of activated charcoal in beauty products, consumers in South Africa are eager
to buy beauty products that contain this ingredient. Explain how this will affect
the market for activated charcoal. You are allowed to use a diagram to explain
your answer, but you will only be allocated marks for the correct verbal
explanation.
The increased advertising effort about the positive effect of activated
charcoal in beauty products in South Africa will likely have a significant
impact on the market for activated charcoal. The effect can be explained
through the lens of demand and supply in the market.
1. Increase in Demand: With consumers in South Africa becoming eager
to buy beauty products containing activated charcoal, the demand for
these products will rise. This increased demand is depicted as a
rightward shift in the demand curve, as shown in the diagram below:
[Diagram: Demand Curve]
The original demand curve (D0) represents the initial level of demand
for activated charcoal.
Due to the positive advertising effect, the demand curve shifts to the
right, from D0 to D1, indicating an increase in demand.
2. Higher Prices and Quantity Sold: As demand rises, beauty product
manufacturers will respond by increasing their production of products
that contain activated charcoal. This higher production will lead to an
increase in the quantity of activated charcoal sold in the market.
Moreover, the increased demand, in combination with a limited supply
of activated charcoal, will put upward pressure on prices. The diagram
illustrates this as follows:
[Diagram: Supply Curve]
The original supply curve (S0) represents the initial level of supply for
activated charcoal.
The increased demand pushes the quantity demanded (Q1) above the
initial quantity supplied (Q0) at the original price (P0).
In response to the increased demand, suppliers will adjust by
increasing the price (P1), leading to a new equilibrium point (E1) where
quantity demanded (Q1) equals quantity supplied.
3. Profit Opportunities and Market Growth: As beauty product
manufacturers see the rising demand for activated charcoal-based
products, they will likely recognize the profit potential in meeting this
demand. Consequently, more companies may enter the market,
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