# Buy Demand Supply and Price Discussion

Buy Demand Supply and Price Discussion
Buy Demand Supply and Price Discussion
Question 2
a) The reduction in the size of the peach harvest due to bad weather is a decrease in the
supply of peaches  a leftward shift of the supply curve. For a given demand curve, this
leads to an increase in equilibrium price.
b) An increase in income leads to an increase in the demand for all normal goods.
Assuming beef is a normal good, there will be a rightward shift in the demand curve for
beef. For a given upward-sloping supply curve, this shock leads to an increase in the
equilibrium price and quantity of beef. This is an increase in the quantity supplied of beef
(caused by the price increase).
c) Technological improvements in microchips reduce the cost of producing computers and
therefore cause an increase in supply — a rightward shift of the supply curve for
computers. This causes a fall in the equilibrium price and an increase in equilibrium
quantity.
d) Greater awareness of the health risks leads to a reduction in demand for cigarettes and
thus, for a given supply curve, to a reduction in the equilibrium price and quantity. As price
falls, there is a reduction in the quantity of cigarettes supplied.
Question 4
a) The finding that eating chicken can improve your health should lead to an increase in the
demand for chicken (and presumably a reduction in the demand for less healthy meats).
This will be shown by a rightward shift in the demand curve for chicken.
b) As the price of beef rises, consumers will substitute away from beef and toward other
meats, including chicken. This will be shown by a rightward shift in the demand for
chicken.
c) If chicken is a normal good — meaning that consumers want more of it when their real
income rises — then the rise in household income leads to an increase in the demand for
chicken. This will be shown by a rightward shift in the demand curve for chicken.
Question 6
The apparent contradiction is solved when we recognize the difference between an increase
in supply and an increase in quantity supplied. As the price of beef rises, say from p0 to p1,
ranchers will sell more cattle to slaughterhouses. This is an increase in the quantity of beef
supplied, as indicated by a movement from A to B along the supply curve in the figure
below. An increase in the supply of beef, caused perhaps by a reduction in the price of
cattle feed, will shift the supply curve to the right (from S to S′) and reduce the equilibrium
price from p1 to p3, a move from A to C along the stable demand curve in the figure.
Buy Demand Supply and Price Discussion
Question 8
The quotation describes demand as becoming more “voracious” each year—this suggests
that demand for cocoa is growing. The fungal and viral diseases suggest a reduction in
supply as producers find it more expensive to grow cacao trees and thus deliver cocoa to
market. Since demand is shifting to the right and supply is shifting to the left, it is clear that
equilibrium price should be rising in the future. What happens to equilibrium quantity
depends on the relative sizes of the shifts of demand and supply.
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