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Supply and Demand Changes

1. If nothing else changes, what happens to the price and quantity if the supply curve shifts to the right?

2. Suppose a decrease in consumers' income causes a decrease in the demand for chicken and an increase in the demand for potatoes. Which good is inferior and which is normal? How will the equilibrium price and quantity change for each good?

3. In the United States, corn is often used as an ingredient in animal feed for livestock. Why does an increase in the use of corn to make ethanol, an additive that is used in gasoline, raise the price of meat? Use supply and demand curves for the corn market and the meat market to explain your answer.

4. What is the law of supply? Give two examples of how you have observed the law of supply at work.

Solution Preview

1. The way to do this is to draw a supply and demand function and then move the supply curve (line) to the right and you will find that the new equilibrium, where S equals D has a lower price and a higher quantity. The short answer to the question is: price goes down, quantity increases.

2. Chicken is normal (the income effect goes with the shift in income.... a ...

Solution Summary

1. If nothing else changes, what happens to the price and quantity if the supply curve shifts to the right?

2. Suppose a decrease in consumers' income causes a decrease in the demand for chicken and an increase in the demand for potatoes. Which good is inferior and which is normal? How will the equilibrium price and quantity change for each good?

3. In the United States, corn is often used as an ingredient in animal feed for livestock. Why does an increase in the use of corn to make ethanol, an additive that is used in gasoline, raise the price of meat? Use supply and demand curves for the corn market and the meat market to explain your answer.

4. What is the law of supply? Give two examples of how you have observed the law of supply at work.

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