Question

Problem 2: Simultaneous Shifts in Demand and Supply (2 points) Consider the following situations. Using the market graphs provided for each situation, show what happens in the market to demand and supply, as well as the equilibrium quantity and price. Use arrows to show directions of change! If a change is uncertain, explicitly state that the change in the equilibrium P or Q is "uncertain" Situation 1: Suppose that a technological advancement substantially reduces the cost of producing cheese, while a new study suggests that excessive use of cheese is harmful to a person's health. What happens in the market for cheese? (2 points) QS in Quantity of Cheese Price of Cheese

Answer 1

An increase in the supply will shift the supply curve to the right and decrease in the demand will shift the demand curve to the left, this means the price will fall in the market and the change in the quantity will be indeterminate.

An increase in the demand and decrease in the supply both shown in the graph below in the cheese market. Price p* ---- DID Q2 Output Cheese market