Question

What happens to the market demand for McDonald’s hamburgers when ­­­______?

Scientific studies show that eating hamburgers increases the risk of cancer comparable to tobacco use.

The question is presenting a change in the demand environment for McDonald’s hamburgers. The assumption of "ceteris paribus" (other things being equal) is made in each case.

You should begin by drawing a typical market demand curve for McDonald’s hamburgers. You must both explain your answer verbally and illustrate your answer graphically. Label the axes of your graph and label or otherwise identify the curve(s) in your graph. If you use abbreviations, state what the abbreviations mean.

Your answer should include the following statements:

(a) the demand curve to which the result pertains (it is: “the demand curve for McDonald’s hamburgers”).

(b) whether the result involves “a movement along” the demand curve or “a shift in” the demand curve.

(c) specification of the direction of the “movement along” or “shift.”

(d) why the “moving along” or “shift” occurs.

Answer 1

When scientists inform that eating hamburgers increases the risk of cancer, people's demand for hamburgers fall. This leads to leftward shift in demand curve. There is no movement along the curve because there is no change in price of McDonald's price. Due to unchanged supply, excess supply is created. To reach equilibrium, price decreases and new equilibrium reaches at e' where both equilibrium price and quantity are lower at P'and Q' respectively.