Problem Set 2 ̶ Supply and Demand Question 1
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| Question 12 Explain how simultaneous shifts in demand and supply curves could explain these situations a. The price of insulin injection kits, used by diabetic patients, increases from $45 to $52, but the equilibrium quantity remains the same. b. A pest attack on the tomato crop increases the cost of producing ketchup. A mild winter causes cattle herds to be unusually large, causing the price of hamburgers to fall. The equilibrium quantity of ketchup is unchanged. Question 13 Sketch generic supply and demand curves for the housing market and label the equilibrium price and quantity. a. A booming economy increases the demand for housing. Show the shift in the demand curve on your graph. What does this do to the price and quantity in the market b. You and a friend both notice that more houses are builtin response to this change. Your friend says, this is a sign that the supply curve is shifting as well You respond, no, this is actually just a shift along the supply curve To help your friend understand, demonstrate what you mean on your graph. c. As it turns out, there actually is a shift in the supply curve due to an unrelated breakthrough in construction that lowers the cost of building houses. In what direction does the supply curve shift Show this on your graph. d. Relative to the original price and quantity, what is the overall effect of both shifts on price and quantity Question 14 Brazil is the world’s largest coffee producer. There was a severe drought in Brazil in 2013-14 that damaged Brazil’s coffee crop. The price of coffee beans doubled during the first three months of 2014. a. Draw and discuss a supply and demand diagram to explain the increase in coffee prices. b. Are coffee and tea substitutes or complements Explain. c. What do you think the impact of this drought has been on the equilibrium price and quantity of tea Draw a supply and demand diagram for the tea market to explain your answer. Download 383.12 Kb. Share with your friends:
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