Question

In each of the following cases, indicate whether a change in the demand or supply curve (or neither) is taking place for lettuce and for tomatoes. Assume all the markets described are competitive and in equilibrium both before and after the change:
a. The cost of producing lettuce falls, as does the price. Consumers purchase more lettuce.
b. In August, the price of tomatoes fell by 15 cents per pound and consumers purchased more lettuce.
c. The price of tomatoes falls by 50 cents per pound and consumers purchase less lettuce.
d. Consumer incomes rise. They stop eating tomatoes and buy more automobiles.

Answer 1

a)As cost of producing lettuce falls, price of lettuce falls and thus demand for lettuce increases as they are now cheaper to consumers.Thus demand curve shifts rightward.

b)Demand for tomatoes increases as it's price decreases and as consumers are purchasing more lettuce so supply will increase. So supply curve of lettuce shifts rightward.

c) Demand for tomatoes increases as it's price decreases and demand for lettuce decreses as people are purchasing it now less. Demand curve for tomatoes shift rightward and demand for lettuce decreases.

d)As consumers incomes increases and consumers stopped consuming tomatoes suggest to us that tomatoes are inferior goods and tomatoes demand curve shifts leftward and demand curve for automobiles shifts rightward.