BRAC University 4. For each of the following scenarios, draw a demand-supply diagram to illustrate and explain the effects of the given shocks on the equilibrium price and quantity in the specified market. Assume that each market is initially at equilibrium: a. In Japan, more people start buying electric bicycles as fuel prices increase. At the same time, the cost of producing electric bicycles also rises due to higher prices of raw materials. Draw a diagram and explain what will happen in the electric bicycle market if both effects are equal. [ 5 marks] b. In Brazil, a drought reduces the supply of coffee beans. At the same time, people in other countries are drinking more coffee than before. Draw a diagram and explain how the price and quantity of coffee will change. [ 5 marks]

As Japan's consumers turn towards electric bicycles, rising fuel prices will shift the demand curve to the right, indicating increased demand. Meanwhile, the cost of producing these bicycles increases, shifting the supply curve to the left, signaling a decrease in supply. If these two changes offset each other equally, the equilibrium quantity may remain stable while the equilibrium price increases, as the demand shift creates upward pressure. In Brazil, a drought reduces coffee bean supply, shifting the supply curve leftward, while an increased global coffee trend shifts demand rightward. The combination leads to a significant price increase due to diminished supply confronting heightened demand. The equilibrium quantity of coffee sold will likely decrease, leading to higher prices, as consumers bid up the limited stock of coffee beans available.