What will happen to the market equilibrium price and quantity for butter when the cost of producing butter rises?

with the rise in price of bread, the price of butter falls and thequantity demanded also falls.Consequently, the demand curveshifts to the left.With the rise in price of bread, the demand curve shiftsleftwards due to complementary nature of the goods i.e. fromD1 to D2. Now, the new equilibrium price of butter exists atpoint E1 and the quantity of butter shifts from Q1 to Q2.(d)Explanation: bread and butter are complementary goods.So, with the increase in demand for bread, the price of butterrises and quantity demanded also rises. Therefore, demandcurve shifts to the right.

With the increase in demand for bread, the demand curveshifts rightwards i.e. from D1 to D2. The new equilibrium priceof butter exists at point E1 and quantity of butter shifts from Q1to Q2.(e) Explanation: With the expectation of the rise in the price ofbutter in the future, the demand curve shifts to the right aspeople buy now before the price rises.With the expectation of rise in price of butter in the comingfuture, the demand curve shifts rightwards from D1 to D2. Thenew equilibrium price of butter exists at point E1 and quantityof butter shifts from Q1 to Q2.

(f) Explanation: if an tax is imposed on the production of butter,the price of butter rises and the quantity falls. The supply curveshifts to the left.With the imposition of tax on butter production, the supplycurve shifts leftwards from S1 to S2. The equilibrium price ofbutter exists at point E1 and the quantity of butter shifts fromQ1 to Q2.(g) With the invention of new but expensive process for removingall cholesterol from butter, plus the passing of law which statethat all butter producers must use this process.Then the price ofbutter rises. Consequently, supply curve shifts to the left as aresult of the increased cost of production.

With the invention of new process in butter production, thesupply curve shifts leftward i.e. from S1 to S2 due to increasedcost of production. The new equilibrium price of butter exists atpoint E1 and quantity of butter shifts from Q1 to Q2.Answer 5Even when markets are competitive, some markets may still failbecause they suffer from the presence of side effects economists callexternalities.An externality is a cost or benefit imposed on peopleother than the consumers and producers of a good or service.Externalities are also calledspillover effects or neighbourhoodeffects.People other than consumers or producers who are affectedby these side effects of market exchanges are called third parties.Approaches to solving these ‘failures’ are:1.Regulations (to limit pollution): legislation can set standardsthat force firms to clean up their emissions as a condition ofremaining in business. This means firms must buy, install, andmaintain pollution- control equipment.2.Pollution taxes: another approach would be for the governmentto levy a tax per ton of steel equal to the external cost imposedon society when the firm emits pollution into the air.