2. Always start at X and then consider the changes
separately:
e.g. The market for chocolate is currently at equilibrium
at point X. What will the new equilibrium be if a health
report is published saying that eating chocolate
increases life expectancy, and if there is an increase in
the cost of cocoa beans.
Explanation: The health report will increase the demand
for chocolate, causing the demand curve to shift to the
right to D1. An increase in the cost of cocoa beans will
increase costs of production and will therefore shift the
supply curve to the left to S2.
Answer: A
3. Another example: The market for bicycles is
currently in equilibrium at point X. What will be
the new equilibrium if the cost of tyres increases
and if there is a widely publicised increase in the
number of cyclists killed on the roads.
Explanation:
• The increase in the cost of tyres will increase
costs of production and shift the supply curve to
the left to S2.
• The increased number of accidents will
discourage some people from cycling and
therefore reduce the demand for cyclists causing
the demand to shift to the left to D2.
• Answer: B
