Question

The demand for hamburgers in your hometown shifts due to an increase in the price of tacos. Choose the answer that best describes the shift and the effect on equilibrium price and quantity that results. A.The demand curve shifts to the right, and results in a fall in the equilibrium price and a rise in the equilibrium quantity. B.The demand curve shifts to the right, and results in a rise in the equilibrium price and a fall in the equilibrium quantity. C.The demand curve shifts to the right, and results in a fall in the equilibrium price and quantity. D.The demand curve shifts to the right, and results in a rise in the equilibrium price and quantity.

Answer 1

The correct answer is option D: The demand curve shifts to the right, and results in a rise in the equilibrium price and quantity.

Explanation:

Hamburgers and tacos are substitute goods. This means that people tend to consume these goods in place of each other. If they start consuming more hamburgers, they would consume fewer tacos. Similarly, if they start consuming more tacos, their consumption of hamburgers falls.

Now, an increase in the price of tacos induces the people to buy more hamburgers in place of tacos. This causes a rise in the demand for hamburgers which are now more affordable compared to tacos.

As a result, the demand curve for hamburgers shifts to the right. This increase in demand, in turn, causes the price of hamburgers to rise as more people are now willing to buy the hamburgers.

Hence, the demand curve of hamburgers shifts to the right, and results in a rise in the equilibrium price and quantity, which is option D.