Two Strips of Bacon on a Market-Clearing Price

The year of the bacon burger was 1995. It seems as if every hamburger restaurant in the United States added a

couple of strips of bacon to its burgers in that year. Two pieces may not sound like much, but when you

multiply them by millions of burgers, they add up to a lot of bacon.

Bacon is made from slabs of uncured pork called pork bellies. Not surprisingly, the price of pork bellies rose by

nearly 50% during 1995. Fortunately for bacon fans, the price increase was short-lived. After a couple of

months, producers introduced more pork to the market causing the price to fall back toward its original level1

1. Did pork bellies become scarcer during 1995? Explain.

2. Use this blank graph to draw your own demand and supply curves to show why the price of pork bellies soared during 1995. (Instead of plotting specific numbers for demand and supply, just sketch the appropriate

curves.)

3. Refer to the graph you have drawn for each of the following:

a. What pushed up the price of pork bellies?

b. What would have occurred if the government had prevented the price of pork bellies from rising above its original level?

c. Was the higher price the market's method of rationing available supplies? Explain.

Use this blank graph to show why the price of pork bellies dropped back toward its original level.

4. Besides illustrating the rationing function of market prices, the example also shows another important function of those prices. Explain that function.

Supply Curve of Computers $3500- $3000- $2500- $2000- Price $1500 - $1000 $500- $0- 0 1000 2000 3000 4000 5000 6000 Quantity of computers per month Use the graph above to complete the first two columns of the following table. Monthly Supply of Computers Price per Computer Quantity per Month New Quantity per Month $1,000 1.000 2,000Assume that 1,000 more computers are supplied at each and every price. Complete the third column of the table and use the information to plot the new supply curve on the graph. a. Suppose the price of computers had been $2,500 before the supply curve shifted. How many computers were supplied at that price? b. Suppose the price of computers is $2,000 after the supply curve shifts. How many computers are supplied at this lower price? c. More computers are produced and sold at the lower price than at the higher price. Does this mean the price effect doesn't apply to the supply of computers? Explain. Briefly describe one or two factors that could cause the supply curve to shift as shown in the graph above