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Category: Critical Thinking

Subcategory: Economics

Level: College

Pages: 3

Words: 825

Hot Chocolate Demand and Supply
Institutional Affiliation
Question one

Price S

Qe1 Qe2Quantity
When the weather turns cold, people will take more of hot chocolate to try and stay warm. Therefore, the demand for the hot chocolate will increase from D1 to D2. The equilibrium price will increase from Pe1 to Pe2, while the equilibrium quantity will increase from Qe1 to Qe2. In the short run, the supply will not be affected. It will remain as indicated by the S (supply curve). The immediate effect will be on the demand side of the hot Chocolate. The demand will increase from D1 to D2 as people take more and more of the chocolate to keep warm (Nagashima et al., 2015).
Question two
Qe2 Qe1Quantity
Given tea is a substitute of hot chocolate, a fall in the price of tea will make it relatively cheaper to hot chocolate. Consumers will, therefore, consume more of tea than hot chocolate. This will mean that the demand of hot chocolate will fall from D1 to D2. A fall in the demand of hot chocolate will lead to a fall in the …

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