Question

Beef supplies are sharply reduced because of drought in the beef-raising states, and consumers turn to chicken as a substitute for beef. How would you illustrate this change in the beef-market in supply-and-demand terms?

represent by draw the graph

Answer 1

Solution:

When the supply of beef reduces, its price tends to rise up, as a result, consumers will shift to chicken as a substitute for beef due to lower prices.

 

Decreased supply means that at every given price, the quantity supplied is lower. Therefore, the supply curve shifts to the left, from S₀ to S₁

If there is a decrease in the supply of goods and services while demand remains the same, prices tend to rise to a higher equilibrium price, from P₀ to P_1, and a lower equilibrium quantity of goods and services, from Q₀ to Q₁. The equilibrium point will shift from E₀ to E_1.

This is illustrated by the below graph: