Question

The market price of cheeseburgers in a college town increased recently, and the students in an economics class are debating the cause of the price increase. Some students suggest that the price increased because several burger joints in the area have recently gone out of business. Other students attribute the increase in the price of cheeseburgers to a recent increase in the price of calzones at local pizza parlors.
Everyone agrees that the increase in the price of calzones was caused by a recent increase in the price of pizza dough, which is not generally used in making cheeseburgers. Assume that burger joints and pizza parlors are entirely separate entities' that is, there aren't places that serve both cheeseburgers and calzones.

1. The first group of students thinks the increase in the price of cheeseburgers is due to the fact that several burger joints in the area have recently gone out of business.

On the following graph, adjust the supply and demand curves to illustrate the first groups explanation for the increase in the price of cheeseburgers.

I don't have the graphs because I don't know how to input it onto the question but I would like to know the change for each graphs supply and demand lines either to the left or right.

2. The second group of students attributes the increase in the price of cheeseburgers to the increase in the price of calzones at local pizza parlors.

On the following graph, adjust the supply and demand curves to illustrate the second group's explanation for the increase in the price of cheeseburgers.

3. Suppose that both of the events you analyzed above are partly responsible for the increase in the price of cheeseburgers. Based on your analysis of the explanations offered by the two groups of students, how would you figure out which of the possible causes was the dominant cause of the increase in the price of cheeseburgers?

A) If the price increase was small, then the supply shift in the market for cheeseburgers must have been larger than the demand shift.

B) If the equilibrium quantity of cheeseburgers increases, then the demand shift in the market for cheeseburgers must have been larger than the supply shift.

C) If the equilibrium quantity of cheeseburgers increases, then the supply shift in the market for cheeseburgers must have been larger than the demand shift.

D) Whichever change occurred first must have been the primary cause of the change in the price of cheeseburgers.

Answer 1

Answer: B) If the equilibrium quantity of cheeseburgers increases, then the demand shift in the market for cheeseburgers must have been larger than the supply shift.

Explanation:

1. An increase in the price of cheeseburgers is due to the fact that several burger joints in the area have recently gone out of business. This will shift the supply curve for cheeseburgers to the left, driving up the price of cheeseburgers and reducing the quantity.

2. An increase in the price of Calzones at local pizza parlors lead to an increase in the demand for Cheese burgers as cheese burgers and calzones are substitutes to each other. So, when price of calzones rise, consumers shift demand to cheeseburgers. This will lead to a rightward shift in the demand for cheese burgers as a result the price and quantity of cheese burgers increase.

3. A decrease in supply due to burger joints going out of business shift the supply curve to the left. Increase in the price of calzones increase demand for burgers shifts the demand curve to the right. Both these will increase the price of cheeseburgers but the effect on quantity cannot be determine as depends on the magnitude of the shift in the two curves.

If demand shifts more than supply, equilibrium quantity increases. If supply shifts more than demand, equilibrium quantity decreases.

Thus, B is correct.