Question

In the following, Determine if there is a movement along the curve (change in quantity supplied) or a shift of the curve (change in the supply curve); Identify the nonprice determinant that changed in those instances where there is a change in the supply curve; Identify any assumptions that you made; Indicate if the supply curve increases or decreases or if there is an increase or decrease in the quantity supplied.

a. Consider the market for peanut butter. Assume that the price of raw peanuts rises.

b. Consider the market for Halloween costumes. Assume that makers of costumes predict that more households will buy costumes for Halloween in October 2018 rather than making them at home.

c. Consider the market for chocolate milk shakes. The price of vanilla milk shakes, a substitute in production, rises.

d. Consider the market for hiking boots. Assume that the price of hiking boots increases.

e. Consider the market for processed meats. Assume that new technology used in the production of processed meats reduces the cost of production.

f. Consider the market for home health care workers. Assume that community colleges double the number of home health care workers that graduate this year.

Answer 1

a. A increase in price of raw peanuts, would cause a movement along the supply curve. As price has risen, suppliers are willing to supply higher quantity at a higher price. Supply curve will remain unchanged.

b. Here the supply curve will shift to the right. The factor is higher future sales expectation. I made the ceteris paribus assumption i.e all other factors remain unchanged.

c. Here there will be a shift of the supply curve.The factor is price of substitute good in production. An increase in vanila milk shake price will decrease supply of chocolate milk shake and supply curve shifts to the left. Here again I made the ceteris paribus assumption.

d. When own price changes, there is always movement along the curve. Here as price of hiking boot increased, quantity supplied will increase. There is no change in supply curve.

e. Here supply curve will shift to the right. The factor is a decrease in input cost (production cost). This allows more to be produced at a price level. Here also the ceteris paribus assumption holds.

f. Here there will be a right shift in supply curve. The factor is increase in number of sellers (home health care workers) as more health care workers are graduating and providing service. More home health care workers means more supply at any given price. Here also i have made ceteris paribus assumption.