Question

Graph the following scenarios for the market for hamburgers. Use the abstract notation (P1, P2, etc) and arrows (from P1 to P2, etc.) used in the book. 1. French fries, which are often eaten with hamburgers, becomes less expensive. 2. News comes out that hamburgers are bad for your health, AND many hamburger sellers go out of business. (Hint: This is a double-shift question

Answer 1

1. French fries work as complements of hamburgers as they are eaten together. Thus, if french fries become less expensive, the demand curve for hamburgers will shift in the rightward direction. This is because people will now demand more hamburgers along with french fries.

2. The news of hamburgers being bad for health will shift the demand curve of hamburgers in the backward direction. This is because people will eat burgers cautiously and demand less of it. Due to lesser demand, the sellers will go out of business shifting the supply curve backwards.

Since this is a double shift question, there can be three cases depicting the scenario. Each case is based on the different magnitude of change in demand and supply curves.

The equilibrium quantity will reduce in each case (since both curves will shift backwards). However, the change in equilibrium price will be different in all the three cases.