1. If consumers expect the price of some good to rise next week, then we generally observe the price of the good rising this week. Explain this fact using a graph. Show
 2. The drought in the plain states has made grain, and therefore feed, quite expensive. Many ranchers cannot afford to feed their cattle, and have sold much of their herd for slaughter. Slaughtering the cows will result in an increase in the supply of beef to the market, which will in turn lead to a decrease in the equilibrium price of beef and an increase in the equilibrium quantity of beef. See graph.
b. Chicken and beef are substitute goods. Illustrate the effect that the slaughter of the cattle herds will have on the equilibrium price and quantity of chicken. As the price of beef decreases, consumers will buy more beef and less chicken. The demand for chicken will decrease, causing a decrease in the equilibrium price and quantity of chicken. See graph. c. As it happens, the slaughter of beef cattle has coincided with a decrease in consumers' income. Assuming that steak is a normal good while hamburgers are an inferior good, use a supply-and-demand diagram for either market to illustrate the combined effect of the two aforementioned events on the equilibrium price and quantity of hamburgers and steak. As consumers' income decreases, the demand for normal goods (such as steak) decreases while the demand for inferior goods (such as hamburgers) increases.
Keep in mind that our conclusion from part a is still valid. A lower price of beef will increase the supply of all goods in which beef is an input. Therefore in each of the two markets in question we deal with simultaneous shifts in supply and demand.
Step One - The market for sugar cane Step Two - The market for rum Step Three - The
market for whiskey What will happen to the equilibrium price and quantity of beef if the price ofchickenfeed increases? Get answer to your question and much more Use supply and demand analysis to explain why hotel room rental rates near yourcampus during parents’ weekend and graduation weekend might differ from the ratescharged during the rest of the year. Get answer to your question and much more As we learn about the mechanics of SUPPLY, we'll be following Jill at her chicken farm. Jill raises chickens on her farm. When the packinghouse offers her higher prices, she allows more fertilized eggs to hatch. When lower prices are offered, she keeps the rooster away from the hens and hatches fewer chickens. So, the higher the price of chickens, the more she’s willing to sell; and the lower the price of chickens, the fewer she’s willing to sell. The table and the graph (right) both show how many pounds (in hundreds) of chicken Jill is willing to sell (each week). DEFINITION Supply is the amount sellers are willing to sell at each price. Supply refers to the schedule relating quantity sold to price per unit; for a given price, the schedule gives the quantity supplied. Thus, a change in the price of the good never changes the supply of that good – it changes the quantity supplied. Does this sound familiar? It should – it’s the same explanation as that made for demand vs. quantity demanded. Again, supply is the whole line. It is the whole table of price and quantity combinations. Let’s look at some of the factors, which change supply (shift the curve). Suppose the price of chicken feed goes up. Jill is willing to feed fewer chickens at each price for which she could sell chicken, so this will decrease her supply of chickens. So, supply will change in response to a change in the price of an input to the production process. The table of prices and quantities has changed – at each price; she’s willing to sell less. Supply has decreased. The changed table corresponds to the shifted supply curve, S’. Are you surprised at the direction of the supply curve shift? Look at the quantity supplied at $4.00/lb. At the original supply, 4 lbs per week will be supplied. Now, however, Jill is willing to only sell 2 lbs per week. This is a decrease in supply. DIRECTION OF SUPPLY SHIFT - EXERCISE Jill is afraid she will lose her workers. A new factory opened down the road and they’re offering higher wages than she is. So, Jill decides to raise her wages, too. What will happen to her willingness to supply chickens at each price? Jill is willing to sell fewer chickens at each price. Jill’s workers must be paid at least as much as they could receive somewhere else if she is to keep them. She can now afford to raise fewer chickens at each price of chicken. This is a decrease in supply. TECHNOLOGY Since her cost of producing each chicken has decreased, she’s willing to produce more chickens at each price. This is an increase in supply. As you can see, the supply has increased. At $3.00/lb, Jill’s willingness to sell chickens has increased from 3 to 4 lbs. TECHNOLOGY - EXERCISE Refrigerator trucks allow chickens to be transported already plucked and dressed (rather than live). This reduces the cost to Jill of getting each chicken to market. What happened to the supply of chicken when refrigerator trucks were invented? The supply curve will change in response to a change in technology. Since the cost of producing each chicken is lower, Jill is willing to sell more chickens at each price of chickens. This is an increase in supply NATURAL CAUSES There’s another obvious cause of problems for Jill – her chickens could all die from a drought or disease, the fox could get into the henhouse, or environmental pollution could cause the egg shells to be too thin. In each case, Jill is less willing to sell chickens – she just doesn’t have them! So, the supply of chickens decreases. OTHER OPPORTUNITY COSTS Other opportunity costs also play a large role in Jill’s willingness to supply chickens. That is, what else could she do with her resources other than raising and selling chickens? The most obvious alternative to raising chickens for meat is to sell eggs. So, when the price of eggs rises, Jill will sell more eggs and keep more chickens for laying (remember, dead chickens don’t lay eggs). This will decrease the number of chickens Jill is willing to send to market each week at the same prices; this is a decrease in supply of chickens. OTHER OPPORTUNITY COSTS - EXERCISE Jill has a new job offer. “The Plant” has offered her a top management position, which will pay much more than she makes raising chickens. What do you think will happen to Jill’s willingness to continue raising and selling chickens? The supply curve will change in response to a change in opportunity costs. Jill’s opportunity cost has just increased – since she can make more money doing something else, her willingness to sell chickens at each price has decreased (or vanished). This is a decrease in supply. SUPPLY OR QUANTITY SUPPLIED For example, in the early 1970’s, President Nixon reduced the price of chicken (among other things). At the lower price per lb, farmers couldn’t afford to feed their chickens, so they killed the baby chicks (it made a very dramatic photo for the evening news). This was not a change in supply – if farmers had been offered the old price per lb, they’d have been willing the former quantity of chicken. Note that the new, lower prices led to less chicken being available to consumers. SUPPLY OR QUANTITY SUPPLIED - EXERCISE Suppose there’s a salmonella scare. People stop buying chicken and the price goes down. What happens to Jill’s supply of chicken? Only the price has changed. This is a change in demand, not in supply! None of Jill’s costs of production have changed – she is willing to sell the same quantity of chicken at each price of chicken as before. Yes, I know that there will be an effect on her sales – please be patient! SUMMARY The following will cause a change in supply (shift of the curve):
EXERCISE #1 Technology changes have made electronic components less and less expensive. What happened to the supply of calculators? The supply curve will change in response to a change in inputs. Calculators are made of electronic components. The lower the price of the inputs, the more calculators that manufacturers are willing to sell at each price. Supply increases. EXERCISE #2 The Gizmo Corporation just negotiated a new contract with its union. The union has agreed to a reduction in the hourly wages for the next year. What will happen to Gizmo Corporation’s supply? The supply curve will change in response to a change in inputs. Again, the cost of production falls when the price of an input falls. In this case, wages will be lower so the Gizmo Corporation will be able to produce more gizmos at each price of gizmos. This is an increase in supply. EXERCISE #3 Suppose the babysitters in the neighborhood get together and decide to charge $20 per hour. What will happen to their supply of babysitting services? (Forget, for now, whether anyone will pay that much) Only the price has changed. As you can see from the graph, at a higher price, babysitters are willing to offer more hours for sale. That doesn’t mean anyone will pay it! We’ll look at that in the module on equilibrium. EXERCISE #4 Suppose the price of steel increases because the government has established quotas for steel imports. What will happen to the supply of cars? The supply curve will change in response to a change in inputs. Cars are made of steel, among other things. The higher the price of steel, the fewer cars will be offered for sale at each price. This is a decrease in supply. EXERCISE #5 There is a drought in Brazil and the coffee crop is smaller than usual. What do you think will happen to the supply of coffee? The supply curve will change in response to a change in nature. There just isn’t as much coffee available for sale now that the drought has caused a bad crop. What will happen to the equilibrium quantity and price of corn if the price of butter a complement increases and the price of fertilizer decreases?As a result of a higher price of butter, the demand for corn decreases . An increase in the price of fertilizer increases the cost of production of corn; the supply curve shifts up, and the supply of corn decreases. the new equilibrium quantity of corn certainly decreases .
How will these developments affect the equilibrium price and quantity of chickens sold in the United States?How will these developments affect the equilibrium price and quantity of chickens sold in the United States? The effect on equilibrium price is unknown and equilibrium quantity will increase.
What will happen to the demand curve for chicken if the price of chicken increases?A change in the price of the good (in this case, chicken) cannot change the demand for chicken because each price is included in the table. A change in price will result in a change in the quantity people are willing to buy.
What would happen in the market for goat cheese if the price of goat feed increased while the price of sheep cheese a substitute in consumption decreased?What would happen in the market for goat cheese if the price of goat feed increased while the price of sheep cheese (a substitute) decreases? The equilibrium quantity would decrease, but the impact on price would be uncertain.
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What will happen to the equilibrium price and quantity of if the price of chicken feed increases assume that chicken and beef are substitute )?
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