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Chapter 3: Problem 16

Use a diagram to illustrate how each of the following events affects the equilibrium price and quantity of pizza. a. The price of mozzarella cheese rises. b. The health hazards of hamburgers are widely publicized. c. The price of tomato sauce falls. d. The incomes of consumers rise and pizza is an inferior good. e. Consumers expect the price of pizza to fall next week.

Short Answer

Expert verified
a. The price of mozzarella cheese rises. b. The health hazards of hamburgers are widely publicized. c. The price of tomato sauce falls. d. The incomes of consumers rise and pizza is an inferior good. e. Consumers expect the price of pizza to fall next week. Answer: a. Equilibrium price increases, and equilibrium quantity decreases. b. Equilibrium price and quantity both increase. c. Equilibrium price decreases, and equilibrium quantity increases. d. Equilibrium price and quantity both decrease. e. Equilibrium price and quantity both decrease.

Step by step solution

01

a. The price of mozzarella cheese rises.

When the price of mozzarella cheese increases, it becomes more expensive for pizza producers to make pizza. This results in a decrease in the supply of pizzas. In this situation, we expect the supply curve to shift to the left, as shown in the diagram below. This will cause the equilibrium quantity of pizzas to fall and the equilibrium price to rise. Diagram: Supply curve shifts to the left
02

b. The health hazards of hamburgers are widely publicized.

If the health hazards of hamburgers are widely publicized, consumers may be discouraged from eating hamburgers and are more likely to buy pizza as an alternative. This change in consumer preferences can lead to an increase in the demand for pizza. In this case, the demand curve would shift to the right, as shown in the diagram below. As a result, both the equilibrium quantity and price of pizza would increase. Diagram: Demand curve shifts to the right
03

c. The price of tomato sauce falls.

When the price of tomato sauce decreases, it becomes cheaper for pizza producers to make pizza, which results in an increase in the supply of pizzas. In this situation, we expect the supply curve to shift to the right, as shown in the diagram below. This will cause the equilibrium quantity of pizzas to rise and the equilibrium price to fall. Diagram: Supply curve shifts to the right
04

d. The incomes of consumers rise and pizza is an inferior good.

When incomes increase and pizza is considered an inferior good, the demand for pizza would decrease because consumers are more likely to buy higher-quality alternatives. In this case, the demand curve would shift to the left, as shown in the diagram below. This would lead to a decrease in both the equilibrium quantity and price of pizza. Diagram: Demand curve shifts to the left
05

e. Consumers expect the price of pizza to fall next week.

If consumers expect the price of pizza to fall next week, they may be less likely to buy pizza this week, thinking that they can purchase pizza at a lower price later on. This can lead to a decrease in the current demand for pizza. In this situation, the demand curve would shift to the left, as shown in the diagram below. As a result, both the current equilibrium price and quantity of pizza would decrease. Diagram: Demand curve shifts to the left

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Most popular questions from this chapter

Will Shakespeare is a struggling playwright in sixteenth-century London. As the price he receives for writing a play increases, he is willing to write more plays. For the following situations, use a diagram to illustrate how each event affects the equilibrium price and quantity in the market for Shakespeare's plays. a. The playwright Christopher Marlowe, Shakespeare's chief rival, is killed in a bar brawl. b. The bubonic plague, a deadly infectious disease, breaks out in London. c. To celebrate the defeat of the Spanish Armada, Queen Elizabeth declares several weeks of festivities, which involves commissioning new plays.

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The following table shows a demand schedule for a normal good. $$ \begin{array}{|c|c|} \hline \text { Price } & \text { Quantity demanded } \\ \hline \$ 23 & 70 \\\ 21 & 90 \\\ 19 & 110 \\\ 17 & 130 \end{array} $$ a. Do you think that the increase in quantity demanded (say, from 90 to 110 in the table) when price decreases (from \(\$ 21\) to \(\$ 19)\) is due to a rise in consumers' income? Explain clearly (and briefly) why or why not. b. Now suppose that the good is an inferior good. Would the demand schedule still be valid for an inferior good? c. Lastly, assume you do not know whether the good is normal or inferior. Devise an experiment that would allow you to determine which one it was. Explain.
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