Exam (elaborations)
ECS1500 ASSIGNMENT 3
- Course
- ECS1500 ASSIGNMENT 3
- Institution
- University Of South Africa
ECS1500 ASSIGNMENT 3
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A+ECS1500
ASSIGNMEN
T 3
This document contains
workings and solutions to
the question below
Admin
JIMMY COSMAS
, 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, leading to an expansion in the production and supply of activated
charcoal. This growth in the market can be depicted by the rightward shift of the
supply curve, as shown below:
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