Answer to Question #95827 in Microeconomics for tessa

Question

In a supply and demand diagram, draw the shift of the demand curve for hamburgers due to the following events. In each case, show the effect on equilibrium price and quantity. a) The price of tacos increases. Assume that tacos are a substitute for hamburgers. b) All hamburger sellers raise the price of soda. Assume that soda is a complement of hamburgers. c) Income falls. Assume that hamburgers are a normal good. d) Income falls. Assume that hamburgers are an inferior good. e) Hot dog stands cut the price of hot dogs. Assume that hot dogs are a substitute for hamburgers

Answer 1

a) The price of tacos increases. Assume that tacos are a substitute for hamburgers. In this case the demand for hamburgers will increase, the equilibrium price will increase, the equilibrium quantity will increase.

b) All hamburger sellers raise the price of soda. Assume that soda is a complement of hamburgers.

In this case the demand for hamburgers will decrease, the equilibrium price will decrease, the equilibrium quantity will decrease.

c) Income falls. Assume that hamburgers are a normal good.

In this case the demand for hamburgers will decrease, the equilibrium price will decrease, the equilibrium quantity will decrease.

d) Income falls. Assume that hamburgers are an inferior good.

In this case the demand for hamburgers will increase, the equilibrium price will increase, the equilibrium quantity will increase.

e) Hot dog stands cut the price of hot dogs. Assume that hot dogs are a substitute for hamburgers. In this case the demand for hamburgers will decrease, the equilibrium price will decrease, the equilibrium quantity will decrease.