Question
Asked Oct 1, 2019
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An increase in the price of the cheese used to produce pizza shifts the supply and demand curve of pizza left or right?
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Expert Answer

Step 1

Cheese is used as a raw material in producing pizza. So, cheese is a factor of production in making pizza.

Step 2

It is known that an increase in the price of a factor of production will increase the cost of making pizza. So, the producer will decrease the supply of pizza. Hence, supply curve will shift to left.

As a result, the price of pizza in the market will increase. Now, according to the law of demand, if the price of the good increases, it will lead to a decrease in the quantity demanded of the good.

So, there will be a backward movement along the demand curve.

Step 3

As it is shown in the graph, a consumer is initially at point ‘a’. If the supply of pizza will decrease, the supply curve will shift to the left ...

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Price P Quantity demanded'supplied

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