When the demand curve for cereal shifts to the right the economy moves into a

When the demand curve for cereal shifts to the right

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When the demand curve for cereal shifts to the right, the economy moves into a state of disequilibrium. The previous equilibrium price now results in a shortage, with quantity demanded being greater than the quantity supplied. The shortage now puts upward pressure on price. And as the price of cereal rises, the quantity demanded decreases, while the quantity supplied increases, a process that
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continues until the market again reaches equilibrium, with quantity supplied again equal to the quantity demanded. Because the demand curve has shifted to the right, the new equilibrium price and quantity will both be higher than they were initially. Note that the supply curve does not shift, because none of the factors affecting supply has changed. In particular, the supply curve shifts in response to changes in the following: Factors Affecting Supply Price of inputs Technological progress Size of industry Price of related outputs 7. Shifts in supply or demand II The following graph shows the market for hot dogs in New York City, where there are over a thousand hot dog stands at any given moment. Suppose an innovation in meat processing technology makes it possible to produce more hot dogs at a lower cost than ever before. Show the effect of this change on the market for hot dogs by shifting one or both of the curves on the following graph, holding all else constant. The innovation in meat processing technology lowers the cost of producing hot dogs. Therefore, for any given price of a hot dog, sellers are willing and able to supply more hot dogs. Visually, this is seen as a rightward shift of the supply curve.
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When the supply curve for hot dogs shifts to the right, the economy moves into a state of disequilibrium, as the previous equilibrium price now results in a surplus, with quantity demanded being less than quantity supplied. The surplus now puts downward pressure on price. And as the price of hot dogs falls, the quantity demanded increases, while the quantity supplied decreases, a process that continues until the market again reaches equilibrium, with quantity supplied again equal to the quantity demanded. Because the supply curve has shifted to the right, the new equilibrium price will be lower and the new equilibrium quantity will be higher than they were initially. Note that the demand curve does not shift, because none of the factors affecting demand has changed. In particular, the demand curve shifts in response to changes in any of the following: Factors Affecting Demand Price and availability of related goods (substitutes and goods normally used together) Consumers' incomes Consumers' preferences • Population 8. Another supply and demand puzzle The market price of pizzas in a college town increased recently, and the students in an economics class are debating the cause of the price increase. Some students suggest that the price increased because the price of dough, an important ingredient for making pizzas, has increased. Other students attribute the increase in the price of pizzas to a recent increase in college student enrollment.
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