Price Increase – Principles of Macroeconomics Homework
The key terms in this Principles of Macroeconomics course include Price Increase, supply curve, demand curve, Mountain Dew, price change.
You advise the owner of a local restaurant to lower the prices of his burgers. Which of the following is a consequence of this price change?
More people will cook burgers at home.
There is a decrease in demand for the restaurant burgers.
There is an increase in the demand for burgers.
There is an increase in demand for fries.
Explanation:
Since fries are a complement for burgers, lowering the price of the burger will increase demand for fries. Fewer people will cook burgers at home, because cooking burgers at home is a substitute good for getting burgers at a restaurant. Reducing the price of a burger will increase the quantity demanded, but will not shift the demand curve.
You are a producer of tortillas. In the market for tortillas, two events happen simultaneously: there is a decrease in the price of corn used to make your tortillas, and there are headlines that promote the link between eating tortillas and reducing heart attacks.
Which of the following is a consequence?
There is a decrease in the price of tortillas and an increase in the quantity of tortillas.
There is a decrease in the price of tortillas and a decrease in the quantity of tortillas.
We know the quantity will increase, but we don’t know what will happen to the price unless we know the size of the shifts.
There is an increase in the price of tortillas and a decrease in the quantity of tortillas.
Explanation:
The cost of making tortillas has decreased due to a cheaper ingredient, so the supply of tortillas will increase. The headlines linking lower rates of heart attacks with consumption of tortillas will increase the demand for tortillas. Both of these changes increase the equilibrium quantity of tortillas. To determine whether price will increase or decrease, we need to know whether the shift in supply or the shift in demand is greater.
You find out that the local Walmart is having a huge sale on Mountain Dew. You rush down with the intent of buying as much Mountain Dew as you can. This would be shown as
a shift rightward of the demand curve for Mountain Dew.
a shift rightward of the supply curve for Mountain Dew.
a shift leftward of the demand curve for Mountain Dew.
a movement along the demand curve for Mountain Dew.
Explanation:
Since the sale involves a reduction of the price, you are going to be staying on your original demand curve, and moving to a lower point. This is a change in quantity demanded and a movement along the curve. If your purchase behavior were changing due to health concerns, for example, this would be shown as a shift of the demand curve.