Rubber set for third surplus this year

a) Define surplus. In a well label diagram, show and briefly explain the situation of surplus as
mentioned in paragraph one. What would happen to the price of rubber if there is surplus of
rubber in the market? (5marks)

Surplus or excess supply is a condition whereby quantity supplied is greater than quantity
demand.

Surplus of nature rubber has happened due to slower demand growth in China and Europe.
The price is currently above the equilibrium price which means that there will be a
downward pressure for the price to reduce toward the equilibrium point. Since the demand
the is low, many firms will lower their prices. Therefore, price of rubber will be decrease and
 consumers will increase their demands since the price has now become cheaper and
affordable. In this situation, excess supply has exerted downward pressure on the price of
the rubber.

b) Briefly explain the factor mentioned in paragraph one that has caused surplus of rubber.
(3marks)

Factor that caused surplus of rubber is slow demand growth in China and Europe. This
means that the price of rubber is higher than equilibrium price which leads to low demand
of rubber.

c) State two (2) factors mentioned in paragraph three that may increase the stockpiles for
rubber. (2marks)
- Reduction of Synthetic Rubber
- Control the production of rubber.
- Implement government subsidy to the production of rubber.
- Reduce tax on rubber production.
d) Using an appropriate diagram, show the effect on the quantity supplied of rubber when
there is a decrease in price of rubber in the market. (3marks)
 e) Using diagrams, explain what would happen to the demand for rubber if there is a decrease
in price of synthetic rubber? (5marks)

Demand for rubber when decrease in price

f) State two (2) factors that would increase the demand for rubber. (2marks)

i) Reduce the use of Synthetic rubber

ii) Promotes natural rubber by government campaign.
iii) Controls import for synthetic rubber and natural rubber to boost the demand for local
rubber.
iv) Implement quota on buying rubber. Factories need to balance the purchase of synthetic
rubber and local natural rubber.