Question

15. Another supply and demand puzzle 

The market price of calzones in a college town decreased recently, and the students in an economics class are debating the cause of the price decrease. Some students suggest that the price decreased because several new pizza parlors have recently opened in the area. Other students attribute the decrease in the price of calzones to a recent decrease in the price of cheeseburgers at local burger joints. Everyone agrees that the decrease in the price of cheeseburgers was caused by a recent decrease in the price of hamburger buns, which are not generally used in making calzones. Assume that pizza parlors and burger joints are entirely separate entities-that is, there aren't places that serve both calzones and cheeseburgers. 

The first group of students thinks the decrease in the price of calzones is due to the fact that several new pizza parlors have recently opened in the area.

On the following graph, adjust the supply and demand curves to illustrate the first group's explanation for the decrease in the price of calzones. 

The second group of students attributes the decrease in the price of calzones to the decrease in the price of cheeseburgers at local burger joints.

 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.

Suppose that both of the events you have just analyzed are partly 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 figure out which of the possible causes was the dominant cause of the decrease in the price of calzones? 

• If the price decrease was small, then the supply shift in the market for calzones must have been larger than the demand shift. 

• If the equilibrium quantity of calzones increases, then the demand shift in the market for calzones must have been larger than the supply shift. 

• Whichever change occurred first must have been the primary cause of the change in the price of calzones. 

• If the equilibrium quantity of calzones increases, then the supply shift in the market for calzones must have been larger than the demand shift. 

Answer 1

Answer 2

If the equilibrium quantity of calzones decreases, then the demand shift in the market for calzones must have been larger than the supply shift. (This is the correct answer)