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Explain, using a supply and demand diagram, what would happen to the equilibrium price and amount of sugar if a recent Surgeon General’s study declared that regular sugar was just as bad for your health as smoking.

In economics, price and quantity equilibrium are critical principles. A commodity’s equilibrium is the point at which the quantity supplied equals the quantity demanded. An equilibrium price is that at which the market equals the supply as applied to a product. Equilibrium quantity is the quantity of a product that when it is supplied to the market, its supply will be equal to the demand for the same product (Kishtainy, 2012). The equilibrium is determined by the forces of demand and supply. The changes in the equilibrium price and demand are influenced by the consumer behavior. These include; economic issues, preferences, and demographic changes that are experienced.

From the above question, a negative report from the surgeon will make some customers shun away from using the product leading to the reduction in both the equilibrium price and the quantity of sugar. Succinctly, it will cause a decrease in demand for sugar. As illustrated below, the demand will shift from D0 to D1. On the other hand, the equilibrium price of the commodity will reduce from P0 to P1. The quantity of sugar to be supplied will also reduce so that it balances with the existing demand for the product. The equilibrium quantity will reduce from Q0 to Q1. When the prices of the sugar and the quantity supplied of sugar change, the general equilibrium of the sugar will also change. Therefore, the equilibrium in this context will shift from E0 to E1.

Initial Sugar Demanded

Price $2.00 $1.75 $1.50 $1.25 $1.00

Quantity in lbs 50 60 75 95 120

Sugar Demanded after Surgeons Report

Price $2.00 $1.75 $1.50 $1.25 $1.00

Quantity in lbs 30 40 55 75 100

Sugar Supply

Price $1.20 $1.30 $1.50 $1.75 $2.15

Quantity in lbs 50 60 75 95 120

The tables and chart above show a practical example of the surgeon’s report, with the equilibrium point changing and moving closer to the Y-axis.

In conclusion, when the demand for the product reduces, the general equilibrium of the product will reduce. This will lead to the fall in both the prices and quantity of the product, therefore, signifying a reduction in the equilibrium price and quantity of the product.

Reference

Kishtainy, N. (2012). The Economics Book