Question

Consider the market for restaurant pizza in the local area, and assume this market is perfectly competitive. Pizza is a normal good; pizza and hamburgers are substitutes; pizza and buffalo wings are complements. For each of the following situations: sketch a supply-and-demand diagram illustrating the market for pizza; illustrate how the diagram would change as a result of the change indicated; and determine the impact on the equilibrium price and quantity of pizza.

a. A pandemic causes many customers to avoid fancier sit-down restaurants and instead order pizza.

b. Several new pizza shops open.

c. The health hazards of buffalo wings (not pizza) are widely publicized.

d. The incomes of pizza consumers rise and wages for restaurant workers increase.

e. The government increases the sales tax on hamburgers. (Sketch two diagrams: one for the hamburger market, and one for the pizza market.)

Struggling with E. By drawing two diagrams do I make hamburgers price raise from normal than qunaity change to less or demand less?

Answer 1

In the market for restaurant pizza, different factors can affect the equilibrium price and quantity. A pandemic and the health hazards of buffalo wings would increase the demand for pizza, leading to higher prices and quantities. New pizza shops opening would increase the supply, lowering the price and increasing the quantity. An increase in incomes and wages would also increase the demand for pizza. Lastly, an increase in the sales tax on hamburgers could lead to an increase in the demand for pizza, depending on the price elasticity of demand.

Step-by-step explanation:

In the market for restaurant pizza, an increase in demand for pizza can be represented as a rightward shift of the demand curve. This would be the case in situations a and c. For situation a, where a pandemic causes customers to avoid fancier sit-down restaurants and instead order pizza, the demand for pizza would increase. This would result in a higher equilibrium price and quantity of pizza. For situation c, where the health hazards of buffalo wings are widely publicized, the demand for pizza would also increase and lead to a higher equilibrium price and quantity.

The situation in which several new pizza shops open, as described in situation b, would result in an increase in supply for pizza. This can be represented as a rightward shift of the supply curve. The increase in supply would lower the equilibrium price of pizza and increase the equilibrium quantity.

In situation d, an increase in the incomes of pizza consumers and wages for restaurant workers would lead to an increase in demand for pizza. This can be represented as a rightward shift of the demand curve. The increase in demand would result in a higher equilibrium price and quantity of pizza.

In situation e, where the government increases the sales tax on hamburgers, the price of hamburgers would increase. This increase in price would make pizza relatively less expensive compared to hamburgers, leading to an increase in the demand for pizza. However, it's important to note that this situation would depend on the price elasticity of demand for pizza and hamburgers.