Question

Illustrate the following with supply or demand curves:

b. In 2018, Dunkin’ Donuts removed six sandwich options from its menu in an effort to streamline operations, and this had a significant impact on the amount of donuts it sold to customers.  

c. From 2014 to 2016, median income in the United States rose by 8.5 percent, shifting the demand curve for gas-line. During that same time period, crude oil prices fell 55 percent, shifting the supply of gasoline. At the new equilibrium, the price of gasoline is less than it was before. (Crude oil is used to produce gasoline.)

Answer 1

b) Dunkin Donuts removed six sandwich options from its menu which mean they are supplying less of sandwiches which will shift their aggregate supply curve to its left from AS to AS1. It tends to raise price level from P to P1 and reduce donuts sold to customer from Y to Y1.

c) If there is rise in median income, there will be rise in demand of gasoline which shifts demand curve to D1 from D. At the same time, crude oil price fell by 55% which is used to produce gasoline. It means that producing gasoline cost less now which induce producers of gasoline to raise aggregate supply. Rise in demand shift demand curve from D to D1 while rise in supply cause supply curve to shift from S to S1 which result in rise in output level from Q to Q2 while price remain at the same level.