Question

For each scenario below, explain how the supply or demand curve would shift, and explain how the equilbrium price and quantity would change. Assume that each market always starts in equilibrium.

(a) Peanut butter market when the price of jelly increased. (b) Lemonade market when firms have developed a new type of fertilizer that allows more lemons grown per tree. (c) Fast food market when minimum wage increased. (d) Coffee market after a report comes out that coffee lowers risk of heart disease. (e) Pepsi market when Coke workers go on strike.

Answer 1

a) Peanut butter and Jelly are substitutes, an increase in the price of the substitute will increase the demand and shift the demand curve to the right, this will increase the price and output in the peanut butter market.

b) A new type of fertilizer will increase the lemon supply and that will shift the lemonade supply curve to the right, the new equilibrium will be at a lower price and higher output.

c) Increase in the minimum wage will increase the supply cost and shift the supply curve to the left, the new equilibrium will be at a higher price and lower output.

d) This will increase the demand for coffee and that will shift the demand curve to the right, the new equilibrium will be at a higher price and higher output.

e) The supply of coke will decrease as the workers are on a strike and that will increase the demand of Pepsi in the market, this will shift the demand curve to the right and the new equilibrium will be at a higher price and higher output.