,SECTION 2: SUPPLY AND DEMAND
1. a. By reducing their herds, dairy farmers reduce the supply of cream, a leftward shift of
the supply curve for cream. As a result, the market price of cream rises, raising the cost of
producing a unit of chocolate ice cream. This results in a leftward shift of the supply
curve for chocolate ice cream as ice-cream producers reduce the quantity of chocolate ice
cream supplied at any given price. Ultimately, this leads to a rise in the equilibrium price
and a fall in the equilibrium quantity.
b. Consumers will now demand more chocolate ice cream at any given price, represented
by a rightward shift of the demand curve. As a result, both equilibrium price and quantity
rise.
c. The price of a substitute (vanilla ice cream) has fallen, leading consumers to substitute
it for chocolate ice cream. The demand for chocolate ice cream decreases, represented by
a leftward shift of the demand curve. Both equilibrium price and quantity fall.
d. Because the cost of producing ice cream falls, manufacturers are willing to supply
more units of chocolate ice cream at any given price. This is represented by a rightward
shift of the supply curve and results in a fall in the equilibrium price and a rise in the
equilibrium quantity.
2. a. A rise in the price of a substitute (tacos) causes the demand for hamburgers to
increase. This represents a rightward shift of the demand curve from D1 to D2 and results
in a rise in the equilibrium price and quantity as the equilibrium changes from E1 to E2.
Solutions Section 2: Supply and Demand
, b. A rise in the price of a complement (french fries) causes the demand for hamburgers to
decrease. This represents a leftward shift of the demand curve from D1 to D2 and results
in a fall in the equilibrium price and quantity as the equilibrium changes from E1 to E2.
c. A fall in income causes the demand for a normal good (hamburgers) to decrease. This
represents a leftward shift of the demand curve from D1 to D2 and results in a fall in the
equilibrium price and quantity as the equilibrium changes from E1 to E2.
d. A fall in income causes the demand for an inferior good (hamburgers) to increase. This
represents a rightward shift of the demand curve from D1 to D2 and results in a rise in the
equilibrium price and quantity as the equilibrium changes from E1 to E2.
Solutions Section 2: Supply and Demand
1. a. By reducing their herds, dairy farmers reduce the supply of cream, a leftward shift of
the supply curve for cream. As a result, the market price of cream rises, raising the cost of
producing a unit of chocolate ice cream. This results in a leftward shift of the supply
curve for chocolate ice cream as ice-cream producers reduce the quantity of chocolate ice
cream supplied at any given price. Ultimately, this leads to a rise in the equilibrium price
and a fall in the equilibrium quantity.
b. Consumers will now demand more chocolate ice cream at any given price, represented
by a rightward shift of the demand curve. As a result, both equilibrium price and quantity
rise.
c. The price of a substitute (vanilla ice cream) has fallen, leading consumers to substitute
it for chocolate ice cream. The demand for chocolate ice cream decreases, represented by
a leftward shift of the demand curve. Both equilibrium price and quantity fall.
d. Because the cost of producing ice cream falls, manufacturers are willing to supply
more units of chocolate ice cream at any given price. This is represented by a rightward
shift of the supply curve and results in a fall in the equilibrium price and a rise in the
equilibrium quantity.
2. a. A rise in the price of a substitute (tacos) causes the demand for hamburgers to
increase. This represents a rightward shift of the demand curve from D1 to D2 and results
in a rise in the equilibrium price and quantity as the equilibrium changes from E1 to E2.
Solutions Section 2: Supply and Demand
, b. A rise in the price of a complement (french fries) causes the demand for hamburgers to
decrease. This represents a leftward shift of the demand curve from D1 to D2 and results
in a fall in the equilibrium price and quantity as the equilibrium changes from E1 to E2.
c. A fall in income causes the demand for a normal good (hamburgers) to decrease. This
represents a leftward shift of the demand curve from D1 to D2 and results in a fall in the
equilibrium price and quantity as the equilibrium changes from E1 to E2.
d. A fall in income causes the demand for an inferior good (hamburgers) to increase. This
represents a rightward shift of the demand curve from D1 to D2 and results in a rise in the
equilibrium price and quantity as the equilibrium changes from E1 to E2.
Solutions Section 2: Supply and Demand
