Each of the situations described below suggest a shift to both the supply and de

Question

Each of the situations described below suggest a shift to both the supply and demand curves. Decide which of the two shifts would likely have the larger impact and describe why you think the shift will be larger. After deciding which shift is larger, indicate what will happen to the equilibrium after both supply and demand change. d) Consider the market for ketchup. Pests attack the tomato crop, lowering the yield of tomatoes and a mild winter causes cattle herds to be unusually large. e) Consider the market for single-family homes. Home prices are expected to be significantly higher next year.

Explanation / Answer

Ans

D here supply will fall because pests demage crop but demand will rise. Supply will fall greater since insects attack directly crop while greater cattle output influences indirectly. Hence price will rise and output fsll

E here supply shifts leftwards and demand rightwards. Demand increases greater since supply can't fall too much in long run (This can alone cause significant price rise) Both output and price will rise.

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