Using the data in Extract A, draw a supply and demand diagram to show the possible impact of the change in the price of gold, between 6 December 2019 and 5 January 2020, on the luxury watch market. - Edexcel - A-Level Business - Question 1 - 2022 - Paper 1

Clearly label the vertical axis as 'Price' and the horizontal axis as 'Quantity'. Make sure to denote the initial price level as P1, where the original equilibrium is found at the intersection of the supply and demand curves (Q1).

As the price of gold increases (as seen in Extract A), the cost of luxury watches likely rises due to higher raw material costs. This causes the supply curve to shift to the left, from S to S1, reflecting a decrease in supply.

Mark the new equilibrium point where the new supply curve (S1) intersects with the original demand curve (D). Denote the new equilibrium price as P and new quantity as Q2. This illustrates how a rise in material costs can lead to higher prices and lower quantities sold in the luxury watch market.