l>EC 200 Practice Problems - Supply and Demand

If the excellent is storable, and also a rise in price is intended, consumers will desire to buy the excellent now, before the price increases. As an outcome, the existing demand also for the excellent boosts, which results in a rise in the price of the excellent this particular day. See graph.

2. The drought in the ordinary says has actually made grain, and also therefore feed, fairly expensive. Many type of ranchers cannot afford to feed their livestock, and also have actually offered much of their herd for slaughter. a. What will certainly be the immediate impact of this occasion on the equilibrium price and also amount of beef? Illustrate using a supply and also demand diagram. Slaughtering the cows will certainly lead to a rise in the supply of beef to the industry, which will certainly in turn lead to a decrease in the equilibrium price of beef and also a boost in the equilibrium amount of beef. See graph.

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Market for beef

b. Chicken and beef are substitute items. Illustrate the impact that the slaughter of the livestock herds will have actually on the equilibrium price and also amount of chicken. As the price of beef decreases, consumers will buy more beef and also much less chicken. The demand for chicken will certainly decrease, causing 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 corresponded with a decrease in consumers" earnings. Assuming that steak is a normal great while hamburgers are an inferior good, use a supply-and-demand diagram for either industry to illustrate the unified effect of the two abovementioned events on the equilibrium price and also quantity of hamburgers and also steak. As consumers" earnings decreases, the demand also for normal products (such as steak) decreases while the demand also for inferior products (such as hamburgers) boosts. Keep in mind that our conclusion from component a is still valid. A reduced price of beef will certainly rise the supply of all items in which beef is an input. As such in each of the two industries in question we resolve simultaneous shifts in supply and also demand also.

Steak: S increases, D decreases.

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Hamburgers: S boosts, D rises.
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The price of steak will certainly decrease. We cannot say for sure what will happen to quantity, considering that that will depfinish on the loved one magnitude of the two shifts. The equilibrium quantity of hamburgers marketed will certainly rise. We cannot say for certain what will occur to the equilibrium price of a hamburger, since that will depfinish on the loved one magnitude of the 2 shifts.

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3. Assume that the markets for sugar cane, rum, and whisessential are initially in equilibrium. Assume further that Hurricane Marilyn destroys much of the Jamaideserve to sugar cane chop. Sugar cane is a principal ingredient in rum, yet it is not an ingredient in whisessential. Analyze the effect of the hurricane on the sectors for each of the 3 products. Exsimple utilizing graphs.


Step One - The industry for sugar cane The Hurricane results in a decrease in supply (at any kind of offered price, sellers are no much longer able to administer as a lot cane as they used to). As a result, the equilibrium price of sugar cane will increase, and also the equilibrium quantity will decrease. See graph.

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Market for sugar cane

Tip Two - The sector for rum Sugar cane is a primary ingredient in rum, and also it is now more expensive. An rise in the price of inputs reasons a decrease in supply. As an outcome, the equilibrium price of rum will certainly rise, and also the equilibrium quantity will decrease. The graph will be similar to the one over.

Tip Three - The industry for whisvital It is reasonable to assume whisvital and also rum are substitutes. Rum is currently more expensive than it used to be (check out Tip Two). As a result, even more consumers will certainly buy whisvital instead. This will cause a rise in the demand for whisvital, which leads to higher equilibrium price and also quantity of whiscrucial. See graph. Market for whisessential