Answer to Question #280932 in Microeconomics for Aman

Question

On the appropriate diagram, show what happens to the market for pizza if the price of tomatoes rises. • On a separate diagram, show what happens to the market for pizza if the price of hamburgers falls.

Answer 1

If the price of tomatoes increases, the supply curve for pizza shifts to the left because the price of an input into pizza production has increased, but there is no demand shift. The equilibrium price raises and the equilibrium quantity declines as the supply curve shifts to the left.

The demand curve for pizza shifts to the left if the price of burgers falls, because customers will buy more hamburgers and fever pizza as a result of the lower price of hamburgers, but there is no shift in supply. The equilibrium price and the equilibrium quantity both fall as the demand curve shifts to the left.