Question 1 (8 marks)

(a) As the “foot and mouth” disease would affect the farmed animals, in this case the sheep, the change in supply would be a decrease.

As shown this would result in an increase in equilibrium price, a decrease in quantity supplied and an increase in price.

(b) As leather can be considered a substitute good, if the price of leather jackets decrease, the relationship is direct therefore the change in demand of woollen jumpers would be a decrease.

As shown the equilibrium price would decrease, along with a decrease in price and a decrease in quantity.

(c) With Kylie Monogue being an international pop star, she has great influence, so therefore wearing a woollen jumper in her latest video would influence consumers leading to an increase in demand for woollen jumpers.

As shown the change in demand results in an increase in the equilibrium price, an income in quantity and an increase in price.

(d) Under the assumption that the new knitting machine increases productivity and lowers production costs, it would result in an increase in supply.

As shown the change in supply results in a decrease in the equilibrium price, an increase in quantity supplied and a decrease in price.

Question 2 (6 marks)

(a)

As shown, the change in supply is an increase, due to the lowering of production costs, there is a movement along the demand curve increasing the quantity demanded, lowering the equilibrium price and lowering price.

(b)

Economists operate under the assumption of “ceteris paribus”, nothing else changes, therefore for point “B” consumers wouldn’t consider pricing as a factor due to the increase in health benefits. As shown, operating under this assumption would remain with the