The market price of calzones 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 calzones, has increased. Other students attribute the increase in the price of calzones to a recent decrease in the price of beer. Everyone agrees that the decrease in the price of beer was caused by a recent decrease in the price of hops, which are not generally used in making calzones.
The first group of students thinks the increase in the price of calzones is due to the fact that the price of dough, an important ingredient for making calzones, has increased.
On the following graph, adjust the supply and demand curves to illustrate the first group’s explanation for the increase in the price of calzones.
DemandSupplyPRICE (Dollars per calzone)QUANTITY (Calzones)Demand Supply
The second group of students attributes the increase in the price of calzones to the decrease in the price of beer.
On the following graph, adjust the supply and demand curves to illustrate the second group's explanation for the increase in the price of calzones.
DemandSupplyPRICE (Dollars per calzone)QUANTITY (Calzones)Demand Supply
Suppose that both of the events you have just analyzed are partly responsible for the increase in the price of calzones. Based on your analysis of the explanations offered by the two groups of students, how would you figure out which of the possible causes was the dominant cause of the increase in the price of calzones?
Whichever change occurred first must have been the primary cause of the change in the price of calzones.
If the equilibrium quantity of calzones decreases, then the supply shift in the market for calzones must have been larger than the demand shift.
If the equilibrium quantity of calzones decreases, then the demand shift in the market for calzones must have been larger than the supply shift.
If the price increase was small, then the supply shift in the market for calzones must have been larger than the demand shift.