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Principles of Macroeconomics (Mind...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305971509

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BuyFindarrow_forward

Principles of Macroeconomics (Mind...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305971509
Chapter 4.4, Problem 4QQ
Textbook Problem
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On the appropriate diagram, show what happens to the market for pizza if the price of tomatoes rises. • On a separate diagram, show what happens to the market for pizza if the price of hamburgers falls.

To determine
Price of related goods and the equilibrium.

Explanation of Solution

Figure 1 illustrates the change in equilibrium due to shift in the supply curve.

Figure 1 illustrates the change in demand and supply of pizza when the price of tomatoes rises. The vertical axis represents the price of pizza and the horizontal axis represents the quantity demanded and supplied of pizza. From Figure 1, it can be inferred that when the price of tomatoes rises, the supply curve of pizza shifts leftwards because an increase in tomatoes’ price is an increase in the price of an input into pizza production. But there will be no shift in demand curve. The leftward shift of supply curve causes a decline in the equilibrium quantity with an increase in the equilibrium price of pizza.

Figure 2 illustrates the change in equilibrium due to shift in the demand curve...

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