Table 1 gives information from a weekend street-food market. A new food-safety rule has increased each stallholder's costs. Price of one meal ($) Quantity d...
Question 1 Report
Table 1 gives information from a weekend street-food market. A new food-safety rule has increased each stallholder's costs.
| Price of one meal ($) | Quantity demanded before rule | Quantity supplied after rule |
|---|---|---|
| 6 | 900 | 300 |
| 8 | 700 | 500 |
| 10 | 500 | 700 |
(a) Use Table 1 to identify the new equilibrium price and quantity. [2]
(b) Explain why the food-safety rule may cause this change in equilibrium. [1]
Answer Details
(a) New equilibrium price: $10; new equilibrium quantity: 500 meals. [2]
Equilibrium is found by locating the price where quantity demanded equals quantity supplied. At $10, both are 500 meals.
(b) The food-safety rule raises production costs, so supply decreases or shifts left. [1]
Higher compliance costs make stallholders less willing or able to supply meals at any given price. The supplied schedule after the rule therefore reflects reduced supply.
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