Question

Answer both questions in full sentences for full credit. Assume you are starting at equilibrium.

1.Adam owns an Italian restaurant and is looking to produce much more food. He implements a new technology that results in him letting go of two of his employees. What will happen to his supply and demand model? Which curve shifts and why? What happens to the market for Adam's Italian food?

2.Peanut butter and almond butter are substitutes. When the price of almond butter rises, what happens to the market for peanut butter?

Answer 1

1. Due to improvement in technology, supply will increase. So, supply curve will shift to the right as lesser employees are hired which decease cost of production, thereby increasing supply. So, equilibrium price decreases and quantity increases for Adam's italian food.

2. As price of almond butter rises, quantity demanded of almond butter falls and thus the demand for its substitute will rise. So, demand for peanut butter will increase which will increase the price and quantity of peanut butter.