Question

Chapter 4: The model of Market Demand and Supply yachtsThe average price of stocks falls by over 20% between now and the end of the year For each of the following problems, state which curve would shift: the supply curve or the demand curve. Then state whether the curve would shift to the right (an increase in supply or demand), or shift to the left (a gasoline Large sports-utility vehicles (like decrease in supply or demand). (Hint: Beware of teo trick questions) Would the the curve demand shift to curve oe the right supply r let Suburbans and Expeditions) become more popular Would umbrellas Heavy rain is forecast. E. Coli bacteria is found in another meat plant. tofu shilft? gasoline Two oil supertankers collide. hamburger The price of hamburger rises. oranges There's an early frost which destroys wheat A drought destroys much of the crop. Supply Left redwood Environmentalists urge consumers to I lumber boycott redwood products. A new study shows that smoking cigars results in lots of wrinkles. The price of margarine goes up. The price of wood pulp rises. cigars much of the crop. A new pesticide is developed which controls tent caterpillars butter paper grapes The National Marines Fisheries Service bans pesticide spraying within 1,ooo feet of waterways containing coho salmon. Hula hoops Brad Pitt confides to People magazine that "he gets a big kick ourt of his hula hoop." The average wage of grape harvesters rises by 10%. wine hospital beds Scientists discover a pill that cures cement A 7.9 earthquake hits San Francisco.

Answer 1

(a)

Redwood Lumber

Environmentalists urge consumers to boycott redwood products.

If consumers oblige then, in that case, they will reduce their consumption of redwood products. The decrease in demand for redwood products will compel the firms producing redwood products to reduce their production and thus, in turn, they will reduce their demand for redwood lumber.

The decrease in demand for redwood lumber will shift the demand curve for redwood lumber to the left.

(b)

Cigars

A new study shows that smoking results in lot of wrinkles.

This adverse health impact will compel the persons to reduce their consumption of cigars. This will lead to decrease in demand for cigars.

The decrease in demand will shift the demand curve for cigars to the left.

(c)

Butter

The price of margarine goes up.

Margarine and butter are substitute goods.

When the price of substitute good increases, demand for given good increases as well and vice-versa.

So, as the price of margarine goes up, the demand for butter will also increase.

The increase in demand for butter will shift the demand curve for butter to the right.

(d)

Paper

The price of wood pulp rises.

Wood pulp is used as a raw material for the production of paper.

Rise in price of wood pulp will increase the cost of production of paper.

As the cost of production of paper will increase, profit margin of paper producers will decrease. This will lead to decrease in production and thus supply of paper will decrease.

This decrease in supply of paper will shift supply curve of paper to the left.