Question

NOSSASSINS Use demand and supply analysis to answer each of the following questions. Assume that the respective market is in equilibrium before the change takes place. Graphically analyze whether there is a movement or a shift in the appropriate curve and then determine the effect on the equilibrium price and quantity. Draw a separate diagram for each question in each market. In the wheat market: A new fertilizer is developed with a lower cost The government imposes a new tax on wheat farmers The price of wheat decreases An improved method of harvesting is introduced ei si In the gasoline market: There is a rumor among producers of another oil embargo which will cause prices to go up An oil embargo actually takes place In the cigarette market: The government increases taxes Cigarette prices decrease 4. In the bagel market: The price of cream cheese goes down A recent health report shows bagels to be higher in fat and therefore less healthy than bread In the banana market: The FDA announces research results which suggest that eating 5 lbs of bananas monthly increases IQ scores by an average of 10 points. What happens in the market for other fruits? In the wine market, the number of new suppliers increases simultaneously with a new law requiring signs to be posted stating the health risks to pregnant women. In the housing market, inflation is growing at 20% per year while a number of builders go bankrupt. In the market for college professors, college enrollments increase dramatically, while loans and grants for graduate work are cut by the government. 8. In the market for crisco, a government report links the use of crisco to blood pressure. 10. In the market for mink coats: Fox coats increase in price The price of mink coats decreases The economy goes into severe recession causing several people to be laid off The price of mink food increases.

Answer 1

Any change in the price of its own good would case a movement in either of the curves and any factor other than the change in the price of its own good , that is income, price of related goods,tastes and preferences etc there will be shift in either the demand curve or the supply curve.

1) In the wheat market

case 1- A new fertilizer is developed with a lower cost.

Thus due to lower cost of production, supply increases. There will be rightward shift in the supply curve of the wheat market.

Prices will fall and more quantity is produced.

Case 2- Imposition of tax on wheat farmers.

This would increase the overall cost of production. Thus supply reduces. There will be leftward shift in the supply curve.

prices will rise and quantity will fall.

C) As price of wheat decreases, quantity demanded of wheat rises. There will be downward movement along the demand curve.

d) Due to an improvement in method of harvesting, overall cost of production will reduce. As a result, supply increases. There is a rightward shift in the supply curve.

Prices will fall and quantity will rise.

2) In the gasoline market

Case 1- Anticipation of rise in price.

Due to expectations of rise in price, the producers will increase their production or supply of gasoline in order to earn more profits. Thus there will be rightward shift in the supply curve.

Prices will fall and quantity will be increased.

Case 2-

Oil embargo actually takes place, this means there is a rise in price of gasoline. Thus the quantity demanded of gasoline will fall. There will be upward movement in the demand curve.

3) In the cigarette market

a) Case 1- Increase in taxes

Since in the cigarette market, the demand curve is more inelastic, thus the burden of tax would be borne by the consumers more.

Due to rise in taxes, demand of the consumers will fall. There will be leftward shift in the demand curve. Prices will fall and quantity will also fall.

b) Due to fall in prices of cigarettes, Quantity demanded of cigarettes will rise. There will be downward movement along the demand curve.

4) In the bagel market

Case 1- The price of cream cheese goes down.

Thus due to fall in price of one of its input constituent, the overall cost of production will fall. Thus supply increases. There will be rightward shift in the supply curve. Prices will fall and quantity will rise.

Case 2- Report showing bagel to be unhealthy.

Due to this report, there will be fall in demand of the bagels. There will be leftward shift in the demand curve. Prices and quantity falls.

As per the HOMEWORKLIB RULES we are required to solve till d subparts, for the rest of the subparts post separately.