With the outbreak of COVID-19, many people in Hong Kong choose cooking at home instead of dining out to reduce the chance of contacting Coronavirus. At the same time, it is observed that many restaurants have closed down. Given that many restaurants cut their menu prices in this period, explain, with the aid of a supply-and-demand diagram, how the above changes affect the market for dining out meals in restaurants.
Answer - As more and more people prefer to cook at home , the demand for the restaurant food will decrease. The demand curve for this will shift left
Due to the reduction in demand , the reduction in menu prices , the supply of the restaurants will also decrease and shift to left. Both these factors shift their respective curves to left.
As we can see in the below diagram , the price due to this will remain unchnaged , but the equilibrium quantity will shift to left and decrease.
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