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Using the data in Extract A, draw a supply and demand diagram to show the possible impact of the change in the price of gold, between 6 December 2019 and 5 January 2020, on the luxury watch market. - Edexcel - A-Level Business - Question 1 - 2022 - Paper 1
Question 1
Using the data in Extract A, draw a supply and demand diagram to show the possible impact of the change in the price of gold, between 6 December 2019 and 5 January 2... show full transcript
Worked Solution & Example Answer:Using the data in Extract A, draw a supply and demand diagram to show the possible impact of the change in the price of gold, between 6 December 2019 and 5 January 2020, on the luxury watch market. - Edexcel - A-Level Business - Question 1 - 2022 - Paper 1
Step 1
Step 1: Construct the Supply and Demand Curves
Answer
Begin by sketching the standard supply and demand graph. The x-axis represents 'Quantity' and the y-axis represents 'Price'. The demand curve (D) slopes downwards from left to right, reflecting the inverse relationship between price and quantity demanded. The supply curve (S) slopes upwards from left to right, indicating that as price increases, the quantity supplied also increases.
Step 2
Step 3
Step 3: Shift the Supply Curve
Answer
Based on the data showing increasing gold prices between 6 December 2019 and 5 January 2020, indicate a leftward shift of the supply curve from S to S1. This shift occurs because higher gold prices increase the production costs for luxury watches, leading to a decrease in supply.
Step 4
Step 4: Identify New Equilibrium
Answer
Mark the new equilibrium point (P, Q) at the intersection of the new supply curve (S1) and the demand curve (D). In this new equilibrium, the price of luxury watches increases (P above P1) while the quantity sold decreases (Q below Q1), demonstrating the impact of rising gold prices on the market.