Use the Supply and Demand analysis for blueberry muffins market. Describe what would be the impact...
Use the Supply and Demand analysis for blueberry muffins market. Describe what would be the impact of the following two events (at the same time) on market outcomes.
A decrease in the price of blueberries AND a decrease in the price of strawberries muffins.
Homework Answers
Blueberries is an input in the production of blueberries muffins . A decrease in the price of blueberries will increase the supply of blueberries muffins , therefore , supply curve for blueberry muffins will shift to the right. As a result ,equilibrium price falls and equilibrium quantity increases.
Strawberries muffins and blueberry muffins are substitute . A decrease in the price of strawberries muffins will decrease the demand for blueberries muffins, therefore ,demand for blueberries muffins will shift to the left . As a result, equilibrium price falls and equilibrium quantity decreases.
When both these events occur at the same time , then overall equilibrium price of blueberry muffins falls but the effect on equilibrium quantity is ambiguous (it can increase, decrease or not change) depends on shift in demand and supply curve.
This is shown in the following graph:
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Use the Supply and Demand analysis for blueberry muffins
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