Many nutritionist regard tofu as virtually a wonder food. Imagine now that yet a

Question

Many nutritionist regard tofu as virtually a wonder food. Imagine now that yet another benefit of tofu is discovered. Mixed with a few cheap ingredients it greatly increase gasoline mileage just as it enhances performance in humans. Evaluate the impact of this starting discovery in terms of the supply and demand for tofu, the price of gasoline and substitute for tofu as a food, fish being an example. For this problem yo can assume that tofu production is perfectly competitive. In this example, describe-do not-draw-supply and demand curves.

Explanation / Answer

This would increase the demand for tofu (shift to the right) and decrease the demand for gasoline (shift to the left). This increases the price of tofu and decreases the price of gasoline (these are downward shifts of the price curve in the firm supply and demand graphs). It also increases the demand for fish (shift to the right), which is a substitute good. All supply curves are upward sloping, All market demand curves are downward sloping. All firm demand curves are horizontal.

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