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QUESTION:
The following graph presents the market for sweaters in 2015. Between 2015 and 2016, the equilibrium price of sweaters remained constant, but the equilibrium quantity of sweaters decreased. Given this information, you can conclude that between 2015 and 2016, the supply of sweatersand the demand for sweaters.
Make changes to the graph to illustrate your answer by showing the positions of the supply and demand curves in 2016.
Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to move a curve and it snaps back to its original position, just drag it a little farther.`
ANSWER:
Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to move a curve and it snaps back to its original position, just drag it a little farther.
Points:
1 / 1
Close Explanation
Explanation:
When pizza parlors enter the market, the supply curve shifts to the right because more calzones are supplied at every given price. Note that according to this model, the price decreases, and, as a result, the quantity demanded increases. This is illustrated by a movement along the demand curve rather than a shift in demand itself.
The second group of students attributes the decrease in the price of calzones to the decrease in college student enrollment.
On the following graph, adjust the supply and demand curves to illustrate the second group's explanation for the decrease in the price of calzones.
Points:
1 / 1
Close Explanation
Explanation:
This causes the demand for calzones to decrease. Subsequently, the equilibrium price of calzones decreases, and, as a result, the quantity supplied decreases. This is illustrated by a movement along the supply curve rather than a shift in supply itself.
Suppose that both groups of students are on the right track, and each of the events described above are partially responsible for the decrease in the price of calzones. Based on your analysis of the explanations offered by the two groups of students, how would you determine which of the possible causes was the dominant cause of the decrease in the price of calzones?
Points:
1 / 1
Close Explanation
Explanation:
Both student groups' explanations could account for the decrease in the price of calzones. The increase in the supply of calzones—caused by the fact that several new pizza parlors have recently opened in the area—causes the equilibrium price of calzones to decrease and the equilibrium quantity to increase. On the other hand, the decrease in demand for calzones—caused by the decrease in college student enrollment—causes both the equilibrium price and the equilibrium quantity of calzones to decrease. This means that if both events are contributing, you can't tell which shift is bigger, or more important, simply by looking at the price change. Recall that when both curves shift, either the price or the quantity change will be ambiguous without more information about which shift dominates.
When demand and supply shift in opposite directions, the change in price is clear, but the quantity shift is determined by which curve moves more. The following graphs both illustrate a decrease in demand and an increase in supply—causing the equilibrium price to decrease—but the magnitudes of the shifts vary, causing different results for the change in the equilibrium quantity:
Therefore, if you know that the equilibrium quantity has increased, then the dominant cause of the price change must have been the increase in the supply of calzones, as shown by the Supply Shift Dominates diagram. If you know that the equilibrium quantity has decreased, then the decrease in demand for calzones must have been the dominant cause of the price change, as shown by the Demand Shift Dominates diagram.
