Quizzol

QUESTION:

Shifts in supply or demand I

The following graph plots the market for scones in Houston, where there are always over 1,000 bakeries. Suppose Houston experiences an unexpected flood of tourists due to a major conference.

Show the effect of this change on the market for scones by shifting one or both of the curves on the following graph, holding all else constant.

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.

Now suppose Congress passes a new tax that decreases the income of Houston residents.

If scones are a normal good, this will cause the demand for scones to .

ANSWER:

Show the effect of this change on the market for scones by shifting one or both of the curves on the following graph, holding all else constant.

Points:

1 / 1

The unexpected flood of tourists causes the population of Houston to increase. With more scone consumers in Houston, the demand for scones increases, which shifts the demand curve to the right.

Note that the supply curve does not shift because none of the factors affecting supply have changed. In particular, the supply curve shifts in response to changes in the following:

Factors Affecting Supply

•	Price of inputs
•	Production technology
•	Number of producers
•	Expectations of producers

Now suppose Congress passes a new tax that decreases the income of Houston residents.

If scones are a normal good, this will cause the demand for scones todecrease Correct

Points:

0 / 1

The demand for normal goods increases when income increases; that is, an increase in income causes an increase in the demand for scones. On the other hand, a decrease in income causes a decrease in the demand for the good. Because you are told that the new tax decreases the income of Houston residents, this causes demand to decrease, or shift to the left.

Posted by Cleveland on August 30, 2024