Question

Demand and Supply the wall The market for frozen waffles (a popular breakfast food and a normal good) is initially at "D. and "S" in the diagram. Begin each question at that position. How will each shock affect the demand or supply curve? A given shock cannot affect both curves. Example: If you think a given shock will cause an increase in demand, then write "D". Quantity of waffles 2. 3. 4. 8. 9. 10. 11. 12. 13. 14. 15. Shock Curve movestes Eating waffles at breakfast becomes more fashionable. A sales tax is imposed on producers of waffles. A sales tax is imposed on producers of muffins (a substitute for waffles). A shortage of wheat affects the price of flour that is used in making waffles. Strawberries (a complement for waffles) experience a poor harvest. "Waffle workers welcome wage win." (Higher wages for waffle workers.) More automation is introduced into waffle production The economy experiences high unemployment and reduced incomes. There is an influx of imported Belgian Waffles (a substitute for waffles). Deep-fried waffle burgers (that use waffles as an ingredient) become popular. Toasters (used to heat waffles for use) become cheaper. Waffles are shown conclusively to cause Irritable Bowel Syndrome. Pop tarts (a production substitute of waffles) become more popular. Waffle workers receive additional training and become more productive. A new, cheaper extrusion method for forming waffles is developed.

Answer 1

1. Eating waffles at breakfast becomes more fashionable: Curve moves to $D_{2}$.

This will move demand curve to $D_{2}$. If eating waffles at breakfast becomes more fashionable then this will increase the demand for waffles & cause the demand curve to shift towards right from $D_{0}$ to $D_{2}$.

2. A sales tax is imposed on producers of waffles: Curve moves to $S_{1}$.

This will move the supply curve to $S_{1}$. When sales tax is imposed on producers of waffles, then this will cause an inward shift in the supply curve from $S_{0}$ to $S_{1}$ & will lead to a higher market price for waffles. Taxation reduces the incentives to produce a good & therefore, decreases the production of a good, so, the supply curve shift towards left when a tax is imposed on producers of a good.

3. A sales tax is imposed on producers of muffins (a substitute for waffles): Curve moves to $D_{2}$.

Imposition of sales tax on producers of muffins will lead to increase in its price, therefore, people will consume waffles instead of muffins which will increase demand for waffles & the demand curve for waffles will shift towards right from $D_{0}$ to $D_{2}$.

4. A shortage of wheat affects the price of flour that is used in making waffles: Curve moves to $S_{1}$.

Flour is an input used in making waffles, when price of an input used to make a product increases then this leads to a decrease in its supply, therefore, the supply curve for waffles will shift towards left from $S_{0}$ to $S_{1}$. The inward shift in supply curve is due to the fact that sellers are less willing or able to sell the product at any given price.