The case:
The market for Panadol was initially in equilibrium. The demand and
supply equations for the market of Panadol were:
Qd = 1000 – 200P
Qs = 100 + 400P
After few years, cost of production of Panadol increased due to increase
in price of paracetamol (one of the main ingredient used in the
production of Panadol). Due to this increase people started using
Disprine instead of Panadol. After some time once again rapid increase
in the prices of Panadaol was recorded. This time increase in prices was
attributed to increasing demand of the tablet due to dengue fever. This
trend added to the miseries of dengue patients. To better cope the
situation, measures should be taken to decrease the price of Panadol so
that dengue affected poor patients could afford it.
Requirements:
A. Find initial equilibrium price and quantity in the market of Panadol.
B. How would the shift of customers to Disprine have affected the market for
Panadol? Support your answer with diagram.
C. How would the increase in cost of production have affected the market for
Panadol? Illustrate graphically.
D. How can the price of Panadol be controlled? Analyze graphically.
(Marks = 5+5+5+5)
ECO401_1_Fall 2011
Moderator: abdulsaboor