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 equilibrium price and quantity 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

Answer part a) 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.

Due to that supply will increase and supply curve will shift to right. Due to it, equilibrium price will fall and equilibrium quantity will rise

Part B)Peanut butter and almond butter are substitutes. When the price of almond butter rises, demand of peanut butter will rise.

The reason is that substitute goods can be used for one other. Increase in price of one good , increase the demand for other good