The questions involve you interpreting the model output within your answers.

Note: The model assumes a single causal relationship, i.e., the price of coffee is the key determinant of the demand for milk and tea. These goods are not affected by changes in other determinants.

In this case, the model output consists of;

• Original and New Price and Quantity
• Original and New Total Revenue

Your discussion should focus on using the simulation output to support the theoretical expectations of your discussion. For instance, you could argue that you would expect that a fall in the supply of coffee would increase the price of coffee. This would have knock on effects in other markets. For instance, the higher price would cause a contraction in the demand for coffee, and therefore, an increase in the demand for substitutes for coffee (i.e. tea) and a fall in the demand for complementary goods (i.e. milk).

Interrelationship between markets home page »»
Use the back button to return to the what happens when option»»