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Chapter 14: Problem 534

Sam owns a fresh vegetable stand. If a new apartment building opens across the street from him, what will probably happen to the prices he can charge for his vegetables? Illustrate using supply and demand curve diagrams.

Short Answer

Expert verified
In summary, with the opening of a new apartment building across the street, the demand for Sam's fresh vegetables is likely to increase, causing the demand curve to shift rightward. This will result in a new equilibrium point at a higher price, meaning Sam can charge more for his vegetables due to the increased demand. This change can be illustrated using supply and demand curve diagrams by comparing the initial equilibrium point, \(E_0\), with the new equilibrium point, \(E_1\).

Step by step solution

01

Identify the initial equilibrium price and quantity

First, we need to determine the initial equilibrium price and quantity of vegetables in the market. This is the point at which the supply and demand curves intersect, meaning that the quantity of vegetables supplied by Sam is equal to the quantity demanded by customers. Let's label this initial equilibrium point as \(E_0\).
02

Analyze the effect of a new apartment building on demand

With the opening of a new apartment building across the street, there will likely be an increase in demand for fresh vegetables, as more people will be living nearby and may prefer to buy from Sam's stand. This increase in demand will result in a shift of the demand curve to the right.
03

Determine the new equilibrium price and quantity

As the demand curve shifts rightward, it will intersect the supply curve at a new point. This new equilibrium point, \(E_1\), indicates the new price and quantity at which quantity demanded equals quantity supplied, as a result of the increased demand.
04

Identify the change in prices

To find the change in the prices Sam can charge for his vegetables, compare the price that corresponds to the initial equilibrium point \(E_0\) with the price at the new equilibrium point \(E_1\). If the price at \(E_1\) is higher than the price at \(E_0\), it means that the increased demand has led to an increase in the prices Sam can charge for his vegetables. In summary, the opening of the new apartment building across the street from Sam's vegetable stand will most likely lead to an increase in the prices that Sam can charge for his vegetables, as illustrated by the shift in the demand curve and the change in equilibrium price in the supply and demand diagram.

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Most popular questions from this chapter

What is meant by the term "supply", and what is a "supply curve"?

If price is 35 cents for each bag of potato chips at Frank's Deli, customers will only purchase 50 bags per week, whereas Frank will want to supply 450 bags. But for every five cents he lowers the price, Frank will supply 100 less bags per week, and customers will demand 100 more bags per week. Find the equilibrium point

Sam owns a fresh vegetable stand. Last week he decided to raise his carrot prices from 59 d per bunch to \(69 \phi\) per bunch. Subsequently, Sam noticed that several of his regular customers were buying 2 bunches instead of their usual one. In fact, his carrot sales had gone up appreciably. When he finally asked one of his customers why she was buying so many carrots, she replied, "My neighbor told me that you had recently raised your price because carrots were in short supply, and that I ought to stock up before you ran out. Does this contradict the law of demand? Why or why not?

Suppose a farmer has just 2 acres of land. He finds from experience that these 2 acres are equally prolific in the production of corn and wheat. Specifically, he has found that each acre is capable of producing either 20 bushels of wheat or 20 bushels of corn. Suppose, too, that no matter how our farmer decides to apportion his 2 acres between wheat and corn, his total costs of production remain at \(\$ 25\). If the price of corn is \(\$ 1\) per bushel and that of wheat is \(\$ 2\) per bushel, what will the farmer do to maximize his profits?

As the price of gasoline rises, what should we expect to happen to the demand for big "gas-guzzling" cars? Illustrate with supply and demand curves.
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