Do you like Mexican food? You can use either corn or flour tortillas when making

Question

Do you like Mexican food? You can use either corn or flour tortillas when making burritos and tacos. I like them both.. Consider the market for corn tortillas. How do the demand (D) and supply (S) curves shift and what is the net short-run impact on equilibrium price (P) and quantity (Q) resulting from the following event(s): Wages to workers making corn tortillas rise. A)decrease S, increase P, and decrease Q. B) increase S, increase P, and decrease Q. C)decrease D, decrease P, and decrease Q. D)decrease S, increase P, and increase Q.

Explanation / Answer

Event - Wages to workers making corn tortillas rise.

This increase in wages of workers making corn tortillas will increase the cost of producing corn tortillas.

This increase in cost of production will lower the profit-margin of the firms producing corn tortillas. This will prompt them to reduce production resulting in a decrease in supply of corn tortillas.

Given the demand for corn tortillas, this decrease in equilibrium price and decrease in equilibrium quantity in the market for corn tortillas.

Thus, there will be decrease in supply, increase in price, and decrease in quantity.

The correct answer is the option (A).

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