Regarding Econ 101 homework

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econhw2q4.docx

4 . Another supply and demand puzzle

The market price of hamburgers 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 beef, an important ingredient for making hamburgers, has increased. Other students attribute the increase in the price of hamburgers to a recent increase in the price of pizza at local pizza parlors. 

Everyone agrees that the increase in the price of pizza was caused by a recent increase in the price of marinara sauce, which is not generally used in making hamburgers. Assume that burger joints and pizza parlors are entirely separate entities—that is, there aren't places that serve both hamburgers and pizza.

The first group of students thinks the reason for the increase in the price of hamburgers is that the price of beef, an important ingredient for making hamburgers, 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 hamburgers.

Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to move a curve and it snaps back to its original position, just drag it a little farther.

The second group of students attributes the increase in the price of hamburgers to the increase in the price of pizza at local pizza parlors.

On the following graph, adjust the supply and demand curves to illustrate the second group’s explanation for the increase in the price of hamburgers.

Suppose that both of the causes suggested by the students are partly responsible for the increase in the price of hamburgers. Based on your analysis of the explanations offered by the two groups of students, how would you figure out which of the possible causes is the dominant cause of the increase in the price of hamburgers?

A. Whichever change occurred first must have been the primary cause of the change in the price of hamburgers.

B. If the equilibrium quantity of hamburgers decreases, then the demand shift in the market for hamburgers must have been larger than the supply shift.

C. If the equilibrium quantity of hamburgers decreases, then the supply shift in the market for hamburgers must have been larger than the demand shift.

D. If the price increase was small, then the supply shift in the market for hamburgers must have been larger than the demand shift.

What is the correct answer?