Utilizing market demand and market supply curves for spaghetti, help me illustrate the effect on equilibrium price and quantity of spaghetti for:
Increased worldwide demand for rice leads to an increase in the price of ride (which many see as an alt to spaghetti in preparing meals)
2007-02-11 13:55:59 · 2 answers · asked by mee8 1 in Social Science ➔ Economics
How would I illustrate that?
2007-02-11 15:09:11 · update #1
If the demand for a commodity increases, there will be two effects: 1) increased production as the price increases, and 2) the increased price will drive more people towards alternative products. Higher demand at all price levels will increase production. People will also substitute similar products for rice, leading to an increase in demand for spaghetti.
2007-02-11 14:54:25 · answer #1 · answered by William N 5 · 0⤊ 0⤋
Given the increase in the price of rice, the demand for spaghetti will increase since spaghetti and rice are subtitutes. In a graph, this means the demand curve or spaghetti increases (shifts up), while theoretically, the supply of spaghetti remains the same. Draw the graphs. Given a constant upward sloping supply, and a downward sloping demand, shift the demand upwards and watch where the new equilibrium point is. It is farther up and farther to the right than before. Price AND quantity increase on equilibrium.
2007-02-14 08:59:44 · answer #2 · answered by danteslives 2 · 0⤊ 0⤋