Question

5.6 For each of the following statements, draw a diagram that illustrates the likely effect on the market for eggs. Indicate in each case the impact on equilibrium price and equilib- rium quantity. a. The surgeon general warns that high-cholesterol foods cause heart attacks. b. The price of bacon, a complementary product, decreases. c. The price of chicken feed increases. d. Caesar salads become trendy at dinner parties. (The dress- ing is made with raw eggs.) e. A technological innovation reduces egg breakage during packing

Answer 1

In each graph, D0 and S0 are initial demand and supply curves intersecting at point A with initial price P0 and quantity Q0.

(a)

Negative health report about consumption will decrease demand. Lower demand shifts demand curve leftward, decreasing both price and quantity. In following graph, D0 shifts left to D1, intersecting S0 at point B with lower price P1 and lower quantity Q1.

(b)

Lower price of complement good will increase demand, which shifts demand curve rightward, increasing both price and quantity. In following graph, D0 shifts right to D1, intersecting S0 at point B with higher price P1 and higher quantity Q1.

(c)

Higher price of chicken feed will decrease supply of eggs. Lower supply shifts supply curve leftward, increasing price and decreasing quantity. In following graph, S0 shifts left to S1, intersecting D0 at point B with higher price P1 and lower quantity Q1.

(d)

Higher demand for the salad will increase demand for eggs, which shifts demand curve rightward, increasing both price and quantity. In following graph, D0 shifts right to D1, intersecting S0 at point B with higher price P1 and higher quantity Q1.

NOTE: As HOMEWORKLIB Answering Policy, 1st 4 parts are answered.