Question

1(18 pts). Consider the market for coffee mugs. A. Draw the market diagram for coffee mugs and make sure and label it completely. Show equilibrium price at $10 per coffee mug, and equilibrium output at 500 per week. B. Explain and show on the diagram what would happen in the coffee mug market after both of these occur. What happens to equilibrium price and equilibrium output? Coffee mugs become less popular and the cost of ceramic glaze decreases (ceramic glaze is an input to making coffee mugs). C. Draw the market diagram for coffee mugs and make sure and label it completely. Show equilibrium price at $10 per coffee mug, and equilibrium output at 500 per week. Explain and show on the diagram what would happen in the coffee mug market after both of these occur. What happens to equilibrium price and equilibrium output? Price of coffee (a complement to coffee mugs) decreases and taxes are lowered that were imposed on coffee mug producers. D. Again, use the market for coffee mugs with an equilibrium price at $10 per coffee mug, and equilibrium output at 500 per week. Explain what would happen in the market if coffee mugs became more popular, but the price did not change. In actuality, why would we never expect this to happen in a free market? What would happen to solve this issue?

Answer 1

A de the lagran auwe diagra Curve i The at point price = 4 10 Es Quantity = diagram, o represents demand & re and ss represents supply we. The equilibrium occurs paint Ę with equilibrium i slo and equilibrium lity = 500 units. (s) A coffee mugs become less popular, la noilo remand curve will shift leftwards to I Quantity I and as cost of input decreases, supply ne shift rightwards with new equi ilibrium at equilibrium price has ee, . decreased and impact duantity a s ambiguous. ods to 1500) arrue where shift equili Es on o As price of complement decreases, demand for collee mug will increase. As Taxes reduce, the supply awowe mill shift tefto right wards. This leads to increase in equilibrium equilibrio price but impact on Quantat ambiguous. e As demand increases demand curne will shift right wards. As price did not change this means that supply has also increased by equal amount Supply amount isne may as prices not increase by same demand . To solve this will increase.