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# eco 5 - because both curves shift the same direction By...

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1/28/08 Incorrect method Show the effect in the market for chocolate chip cookies of an increase in price (input) of chocolate chips and decrease in price of milk (complement). When both curves are shifting, the combined effect on one variable (could be price or quantity) must be unknown. Three questions to work with 1. What symbol goes between and ? 2 & 3. How do we know which variable is unknown? If both curves shift the same direction, left or right, then If the curves shift in different directions, one left one right, then Correct Method Step 2.5- Determine which variable is unknown If the price of chocolate chips increases, then the supply curve will shift right. If the price of milk decreases, then the demand curve will automatically shift right as well because milk is a complement to cookies. By our rules, we know price is unknown
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Unformatted text preview: because both curves shift the same direction. By process of elimination, if the supply curve and the demand curve both move right, we know quantity increases; therefore price is unknown. In the same way, if the curves move in opposite directions, quantity is unknown. * we measure quantity left to right. Example for full credit Show the effect in the market for spam, of an increase in price of electricity and a decrease in consumer income. Spam is an automatic inferior good, but since there is a decrease in consumer income, the demand curve shifts right. An increase in the price of electricity will shift the supply curve left. According to our rules, since the curves shift in opposite directions, quantity is unknown. Now we can graph....
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