Question

Use a supply and demand diagram to show what happens to the price and quantity of the item for the two cases below.

Use a supply and demand diagram to show what happens to the price and quantity of the item for the two cases below t have. J ntersethon+ 2. Price and quantity of soup if income rises and soup is an inferior good. 3. Price and quantity of dog food if there is a rise in the price of dogs. Assume dogs and dog food are complements and use the law of demand to figure out the effect on dog sales.

Answer 1

a) As soup is an inferior good if the income rise the demand for the soup will fall. I.e. the demand curve will fall to the left and the quantity demand will decrease leaving the price same. It is shown in the diagram below.

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b) IF the price if the Dogs increase in the market people will have less number of dogs in homes. If the number of dogs fall the demand for the dog food will also decrease. It will shift the demand for the dog food to a lower level i.e. it will shift to the left at a lower price and lower quantity.

Here, the old equilibrium was at E and the new equilibrium will be at E1. The demand curve in the market shifted to D1 form D.