Question

Supply and Demand — End of Chapter Problem

In each graph below, demonstrate how each event is likely to impact the supply or demand curve in the market for fast-food hamburgers in the United States. (shifting left or right)

a. The price of beef triples.

b. The price of chicken falls by half.

c. Mad cow disease, a rare but fatal medical condition caused by eating tainted beef, becomes common in the United States.

d. The minimum wage rises.

Answer 1

a) As the price of beef triples, cost of producing hamburgers rise which induce producers to produce less of the hamburgers and shift supply curve to its left from AS to AS1 which tends to raise the price level from P to P1 and output to fall from Y to Y1.

b) As beef hamburger and chicken are substitutes to each other, fall in price of chicken will reduce the demand of hamburgers because it will induce consumers to consume more of chicken. It will shift demand curve to its left of hamburgers reducing its price from P to P1 and output from Y to Y1.

c) As rare disease caused by eating beef is observed there would be less demand of hamburgers which will shift the demand curve to its left from AD to AD1 of hamburgers reducing its price from P to P1 and output from Y to Y1.

d) The minimum wage rises, it will raise the cost of producing hamburgers inducing producers to produce less of it. It shift supply curve to its left from AS to AS1 which tends to raise the price level from P to P1 and output to fall from Y to Y1.