Good afternoon! I'm trying to complete my Economis homework and wuld like to make sure that I'm headed in the right direction as well as receive some help on # 7 & 8. Thanks in advance for your help!
4. Assume McDonalds currently sells Quarter Pounders for $1.49 and sells 1,000,000 per month. Explain what happens to the market (Price, quantity, supply, demand, new equilibrium price) for Quarter Pounders if; (treat each change separately)
a. The cost of buns (to McDonalds) doubles (4 pts.)
If the cost of buns doubles, the price of the Quarter Pounder will increase, the quantity will decrease which will result in a movement along the S curve which either increases the market price or stays the same in order to decrease the producer surplus. See Graph 1 on last page- as the price increases, the demand will decrease, the supply will be decreased when the price is low as the seller would rather have a greater supply at a higher price than providing a large supply at a price that is below market equilibrium.
b. Burger King cuts the price of the Whopper to $0.99 (4 pts.)
If Burger King cuts the price of the Whopper to $0.99, there could potentially be a shift in the demand curve to the left because they are substitutes. By the same token, price of the Quarter Pounder will either remain the same or decrease in order to be competitive with the Whopper because consumer will either substitute the QP for the Whopper or they might continue to eat the QP because of their desired taste. The effect will be similar for the quantity, supply, and demand- either it will decrease or remain the same based on the non-price determinants. As far as the new equilibrium price, everyone who is still willing and able to pay the price for the QP will.
c. State government caps the price of the Quarter Pounder at $0.79 (4 pts.)
If the government caps the price of the QP, there would be a shift in the supply curve to the left as it would not be worth economic profit for McDonalds. If the price is below equilibrium, the quantity demand would increase however the quantity supplied would decrease.
d. A news story claims that high consumers of high fat foods have higher IQ’s (4 pts.)
This would result in a shift in the demand curve through preference based on non-price determinants. Prices will increase as the QP would be in high demand and consumers would be more apt to buying at the higher cost because of the reported story of a positive outcome of its consumption.
7. Using the model of Aggregate Supply and Aggregate Demand (Keynes), what would we expect to happen to GDP and price level if Consumer Confidence increases, (assuming all other factors are held constant)? Fully explain your answer. (10 pts.)
8. Using the model of Aggregate Supply and Aggregate Demand (Keynes), what would we expect to happen to GDP and price level if gas reaches $7/ gallon (assuming all other factors are held constant)? Fully explain your answer. (10 pts.)
4. Assume McDonalds currently sells Quarter Pounders for $1.49 and sells 1,000,000 per month. Explain what happens to the market (Price, quantity, supply, demand, new equilibrium price) for Quarter Pounders if; (treat each change separately)
a. The cost of buns (to McDonalds) doubles (4 pts.)
If the cost of buns doubles, the price of the Quarter Pounder will increase, the quantity will decrease which will result in a movement along the S curve which either increases the market price or stays the same in order to decrease the producer surplus. See Graph 1 on last page- as the price increases, the demand will decrease, the supply will be decreased when the price is low as the seller would rather have a greater supply at a higher price than providing a large supply at a price that is below market equilibrium.
b. Burger King cuts the price of the Whopper to $0.99 (4 pts.)
If Burger King cuts the price of the Whopper to $0.99, there could potentially be a shift in the demand curve to the left because they are substitutes. By the same token, price of the Quarter Pounder will either remain the same or decrease in order to be competitive with the Whopper because consumer will either substitute the QP for the Whopper or they might continue to eat the QP because of their desired taste. The effect will be similar for the quantity, supply, and demand- either it will decrease or remain the same based on the non-price determinants. As far as the new equilibrium price, everyone who is still willing and able to pay the price for the QP will.
c. State government caps the price of the Quarter Pounder at $0.79 (4 pts.)
If the government caps the price of the QP, there would be a shift in the supply curve to the left as it would not be worth economic profit for McDonalds. If the price is below equilibrium, the quantity demand would increase however the quantity supplied would decrease.
d. A news story claims that high consumers of high fat foods have higher IQ’s (4 pts.)
This would result in a shift in the demand curve through preference based on non-price determinants. Prices will increase as the QP would be in high demand and consumers would be more apt to buying at the higher cost because of the reported story of a positive outcome of its consumption.
7. Using the model of Aggregate Supply and Aggregate Demand (Keynes), what would we expect to happen to GDP and price level if Consumer Confidence increases, (assuming all other factors are held constant)? Fully explain your answer. (10 pts.)
8. Using the model of Aggregate Supply and Aggregate Demand (Keynes), what would we expect to happen to GDP and price level if gas reaches $7/ gallon (assuming all other factors are held constant)? Fully explain your answer. (10 pts.)
