Stuffed-Crust Pizza is a new pizza introduced by Pizza Hut. What happens to the equilibrium price and equilibrium quantity of Stuffed-Crust Pizza in each of the following situations?
a. Due to weather conditions, the output of wheat decreased and the price of wheat flour increased.
b. The price of beer decreased.
c. Domino's Pizza introduced a similar pizza that sold for $1 less than the one sold by Pizza Hut.
d. A recession reduced households' income.
e. A new oven technology reduced the time it takes to bake a pizza.

Question

Quizplus · Accepted Answer

The Answer is a. A reduction in the supply of wheat raises its price. Since the cost of producing a unit of pizza rises, the supply curve for pizza shifts to the left, the equilibrium price rises, and the equilibrium quantity decreases.
b. For many people, beer and pizza are complementary goods. A decrease in the price of beer increases the quantity of beer demanded, and shifts the demand curve for pizza to the right. As a result, the equilibrium price of pizza rises, as does the equilibrium quantity.
c. If households think of the two brands of pizza as substitutes, the quantity demanded for Domino's pizza rises and this decreases the demand for Pizza Hut's pizza, which lowers its equilibrium price and equilibrium quantity.
d. If Stuffed-Crust Pizza is a normal good, a reduction in consumers' income lowers the demand, which decreases both the equilibrium price and the equilibrium quantity of pizza. (The exact opposite would happen if Stuffed-Crust Pizza were an inferior good.)
e. The new technology lowers the cost of producing a unit of pizza. The supply curve shifts to the right, the equilibrium quantity rises, and the equilibrium price decreases.

Stuffed-Crust Pizza Is a New Pizza Introduced by Pizza Hut