l>EC 200 Practice Problems - Supply and Demand

If the great is storable, and a rise in price is intended, consumers will desire to buy the good today, before the price increases. As a result, the current demand also for the great rises, which results in an increase in the price of the excellent this day. See graph.

2. The drought in the plain claims has actually made grain, and therefore feed, fairly expensive. Many ranchers cannot afford to feed their cattle, and also have actually marketed a lot of their herd for slaughter. a. What will be the immediate effect of this event on the equilibrium price and amount of beef? Illustrate utilizing a supply and also demand diagram. Slaughtering the cows will cause a rise in the supply of beef to the market, which will in turn cause a decrease in the equilibrium price of beef and an increase in the equilibrium amount of beef. See graph.

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Market for beef

b. Chicken and also beef are substitute items. Illustrate the result that the slaughter of the livestock herds will have on the equilibrium price and quantity of chicken. As the price of beef decreases, consumers will certainly buy more beef and much less chicken. The demand also for chicken will certainly decrease, bring about a decrease in the equilibrium price and quantity of chicken. See graph.

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Market for chicken c. As it happens, the slaughter of beef cattle has actually synchronized via a decrease in consumers" income. Assuming that steak is a normal good while hamburgers are an inferior excellent, usage a supply-and-demand also diagram for either industry to illustrate the combined impact of the 2 aforementioned occasions on the equilibrium price and also amount of hamburgers and also steak. As consumers" earnings decreases, the demand for normal goods (such as steak) decreases while the demand for inferior items (such as hamburgers) boosts. Keep in mind that our conclusion from component a is still valid. A lower price of beef will boost the supply of all products in which beef is an input. As such in each of the 2 sectors in question we resolve simultaneous shifts in supply and demand also.

Steak: S boosts, D decreases.

You are watching: If the demand for a product decreases, then we would expect

Hamburgers: S rises, D rises.
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The price of steak will decrease. We cannot say for certain what will certainly occur to amount, because that will certainly depend on the family member magnitude of the 2 shifts. The equilibrium amount of hamburgers sold will increase. We cannot say for sure what will certainly happen to the equilibrium price of a hamburger, considering that that will certainly depfinish on the relative magnitude of the two shifts.

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3. Assume that the sectors for sugar cane, rum, and also whiscrucial are initially in equilibrium. Assume even more that Hurricane Marilyn destroys much of the Jamaihave the right to sugar cane chop. Sugar cane is a primary ingredient in rum, but it is not an ingredient in whiscrucial. Analyze the impact of the hurricane on the industries for each of the three goods. Exordinary using graphs.


Tip One - The sector for sugar cane The Hurricane results in a decrease in supply (at any kind of offered price, sellers are no longer able to provide as much cane as they supplied to). As an outcome, the equilibrium price of sugar cane will boost, and also the equilibrium amount will certainly decrease. See graph.

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Market for sugar cane

Step Two - The industry for rum Sugar cane is a major ingredient in rum, and it is currently more expensive. An boost in the price of inputs reasons a decrease in supply. As an outcome, the equilibrium price of rum will certainly boost, and also the equilibrium quantity will certainly decrease. The graph will certainly be comparable to the one above.

Tip Three - The sector for whiscrucial It is reasonable to assume whiskey and also rum are substitutes. Rum is now even more expensive than it used to be (watch Step Two). As a result, more consumers will certainly buy whisessential instead. This will reason an increase in the demand for whiskey, which leads to greater equilibrium price and amount of whiskey. See graph. Market for whiscrucial