Assume the market for bagels is in equilibrium.
(a) Draw a graph of the Supply and Demand curves in the market for bagels.
(b) Clearly mark the equilibrium price and quantity as p* and q*.
(c) Wheat is used in the production of bagels. If the price of wheat changes, which curve will be affected by this change?
(d) Which direction would it shift? Illustrate this on the graph above. (e) After the shift, if the price remains at p*, will there be a surplus or a shortage?
(f) Clearly mark the new equilibrium price and quantity after the shift as p** and q**.
(g) Is p** higher or lower than p*?
(h) Is q** higher or lower than q*?