l>EC 200 Practice problems - Supply and Demand

If the great is storable, and boost in price is expected, consumer will want to buy the great today, prior to the price increases. Together a result, the existing demand for the an excellent increases, which outcomes in boost in the price that the good today. View graph.

2. The drought in the plain states has made grain, and therefore feed, quite expensive. Many ranchers can not afford to feed your cattle, and have sold lot of their herd for slaughter. A. What will certainly be the immediate impact of this occasion on the equilibrium price and also quantity that beef? highlight using a supply and demand diagram. Slaughtering the cows will result in boost in the it is provided of beef to the market, i m sorry will consequently lead to a to decrease in the equilibrium price that beef and rise in the equilibrium amount of beef. See graph.

market for beef

b. Chicken and beef space substitute goods. Illustrate the impact that the slaughter the the livestock herds will have actually on the equilibrium price and also quantity the chicken. as the price that beef decreases, consumers will certainly buy much more beef and also less chicken. The need for chicken will decrease, leading to a to decrease in the equilibrium price and quantity that chicken. View graph.

market for chicken c. Together it happens, the slaughter of beef cattle has corresponded with a decrease in consumers" income. Assuming that steak is a normal great while hamburgers space an inferior good, use a supply-and-demand diagram because that either market to highlight the linked effect the the two previously mentioned events on the equilibrium price and quantity of hamburgers and steak. together consumers" income decreases, the need for normal items (such as steak) decreases when the need for inferior items (such together hamburgers) increases. Keep in mind that our conclusion from component a is quiet valid. A reduced price of beef will boost the supply of all products in which beef is one input. Therefore in every of the two markets in concern we attend to simultaneous shifts in supply and demand.

Steak: S increases, D decreases.

You are watching: If chicken and beef are substitutes, then a fall in the price of chicken will bring about:

Hamburgers: S increases, D increases.
The price the steak will decrease. We cannot to speak for sure what will occur to quantity, because that will depend on the family member magnitude that the 2 shifts. The equilibrium amount of hamburgers marketed will increase. Us cannot speak for certain what will occur to the equilibrium price the a hamburger, because that will depend on the relative magnitude of the 2 shifts.

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3. Assume that the industries for sugar cane, rum, and whiskey are at first in equilibrium. Assume further that Hurricane Marilyn destroys much of the Jamaican street cane crop. Street cane is a primary ingredient in rum, yet it is not an ingredient in whiskey. Analyze the effect of the hurricane top top the markets for each of the 3 goods. Explain using graphs.

Step One - The market for street cane The Hurricane results in a decrease in supply (at any given price, sellers are no longer able to administer as much cane together they used to). As a result, the equilibrium price of street cane will increase, and the equilibrium amount will decrease. Watch graph.

Market for sugar cane

Step two - The industry for rum sugar cane is a primary ingredient in rum, and it is now more expensive. An increase in the price of inputs causes a diminish in supply. Together a result, the equilibrium price of rum will certainly increase, and the equilibrium quantity will decrease. The graph will be similar to the one above.

Step three - The sector for whiskey that is reasonable to assume whiskey and rum room substitutes. Rum is now much more expensive than it provided to it is in (see action Two). As a result, much more consumers will buy whiskey instead. This will cause boost in the need for whiskey, which leader to greater equilibrium price and quantity the whiskey. Watch graph. Market for whiskey