Question

Question 1. A. What happens to the equilibrium price and quantity of hamburgers when the price of tacos, a substitute, falls? How have the supply and demand curves for hamburgers shifted? Draw a graph showing these shifts.

B. What happens to the equilibrium price and quantity of hamburgers when the price of cattle feed increases? How have the supply and demand curves for hamburgers shifted? Draw a graph showing these shifts.

C. What happens to the equilibrium price and quantity of hamburgers when non-labor income increases? How have the supply and demand curves for hamburgers shifted? Clearly state any assumptions you make. Draw a graph showing these shifts.   

Answer 1

A. When the price of tacos, a substitute good, falls then the demand for hamburgers will fall. The demand curve shifts to the left to D_1. The equilibrium price falls from p to p₁ and quantity falls from q to q₁.

B. When price of cattle feed increases, the cost of production of hamburgers increases. The supply curve shifts to the left to S₁. The equilibrium price increases from p to p₁ and quantity falls from q to q₁.

C. When non-labor income increases, demand curve shifts to the right to D_1. The equilibrium price increases from p to p₁ and quantity increases from q to q₁.