Question

When a change in the supply and demand occur within a market, the effect on the new equilibrium market price or quantity can be determined. However, without information on the relative size of these shifts, both price and quantity cannot be determined. Match the supply and demand changes to the outcome that is known about the new equilibrium in the market for pizza, where pizza is a normal good and cheese and dough are inputs. consumer income rises; pizza dough decreases in price consumer income falls; pizza dough decreases in price consumer income falls; cheese increases in price consumer income rises; cheese increases in price price decreases; output uncertain______price increases; output uncertain_____output decreases; price uncertain______output increases; price uncertain_____.

Answer 1

In the context of market equilibrium for pizza, where pizza is a normal good, an increase in consumer income paired with a decrease in the cost of inputs like pizza dough leads to an increase in output but an uncertain price. When consumer income drops, pizza price decreases, while output becomes uncertain. Conversely, a drop in income coupled with an increase in cheese prices leads to certain output decreases, with uncertain prices.

Step-by-step explanation:

When considering changes in equilibrium price and quantity due to shifts in supply and demand, the outcome can be determined if one knows the relative size of these shifts. When consumer income rises and simultaneously, the price of an input like pizza dough decreases, demand for pizza as a normal good increases, and the supply of pizza increases as well due to lower costs to produce it. The result is an increase in output (or quantity), but the new equilibrium price is uncertain because both demand and supply shifts could put upward or downward pressure on price.

Conversely, when consumer income falls but pizza dough decreases in price, the demand for pizza decreases, but the supply might increase. This situation leads to a decrease in price, whereas the output (or quantity) is uncertain. If consumer income falls and the price of cheese (input) increases, both the demand and the supply of pizza would decrease, leading to a certain decrease in output, but the price remains uncertain. Lastly, when consumer income rises and the price of cheese (input) increases, the demand for pizza would increase and the supply would decrease, resulting in an increase in price, but the output is uncertain.

Answer 2

consumer income rises; pizza dough decreases in price

⇒ output increases; price uncertain

• higher consumer income results in higher prices
• but decrease in the price of inputs results in lower prices
• both result in higher output

consumer income falls; pizza dough decreases in price

⇒ price decreases; output uncertain

• both result in lower prices
• falling consumer income result in lower output
• decrease in the price of inputs results in higher output

consumer income falls; cheese increases in price

⇒ output decreases; price uncertain

• both lower output
• falling consumer income decreases price
• increase in price of inputs increases price

consumer income rises; cheese increases in price

⇒ price increases; output uncertain

• both increase price
• rising consumer income increase output
• increase in price of inputs decreases output