Learning Objective: In terms of macroeconomics; Be comfortable with what shifts the supply and demand curve, and how shifts in either supply or demand or both supply and demand change equilibrium quantity and equilibrium price.
You must answer both. Strategy: explain whether each factor changes supply or demand and in what direction.
1. Music compact discs are normal goods. What will happen to the equilibrium price and quantity of music compact discs if musicians accept lower royalties, compact disc players become cheaper, more firms start producing music compact discs, and music lovers experience an increase in income?
2. What would happen to the equilibrium price and quantity of peanut butter if the price of peanuts went up, the price of jelly fell, fewer firms decided to produce peanut butter, and health officials announced that eating peanut butter was good for you?