KW_Macro_Ch_03_End_of_Chapter_Problems

KW_Macro_Ch_03_End_of_Chapter_Problems - chapter 3 >...

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>> Supply and Demand chapter 3 1. A survey indicated that chocolate ice cream is America’s favorite ice-cream flavor. For each of the following, indicate the possible effects on demand and/or supply and equilibrium price and quantity of chocolate ice cream. a. A severe drought in the Midwest causes dairy farmers to reduce the number of milk- producing cattle in their herds by a third. These dairy farmers supply cream that is used to manufacture chocolate ice cream. b. A new report by the American Medical Association reveals that chocolate does, in fact, have significant health benefits. c. The discovery of cheaper synthetic vanilla flavoring lowers the price of vanilla ice cream. d. New technology for mixing and freezing ice cream lowers manufacturers’ costs of pro- ducing chocolate ice cream. 2. In a supply and demand diagram, draw the shift in demand for hamburgers in your home- town due to the following events. In each case show the effect on equilibrium price and quantity. a. The price of tacos increases. PROBLEMS
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b. All hamburger sellers raise the price of their french fries. c. Income falls in town. Assume that hamburgers are a normal good for most people. d. Income falls in town. Assume that hamburgers are an inferior good for most people. e. Hot dog stands cut the price of hot dogs. 3. The market for many goods changes in predictable ways according to the time of year, in response to events such as holidays, vacation times, seasonal changes in production, and so on. Using supply and demand, explain the change in price in each of the following cases. Note that supply and demand may shift simultaneously. a. Lobster prices usually fall during the summer peak harvest season, despite the fact that people like to eat lobster during the summer months more than during any other time of year. The price of a Christmas tree is lower after Christmas than before, despite the fact that tree growers harvest and supply fewer trees for sale after Christmas than before. c. The price of a round-trip ticket to Paris on Air France falls by more than $200 after the end of school vacation in September. This happens despite the fact that generally wors- ening weather increases the cost of operating flights to Paris, and Air France therefore reduces the number of flights to Paris at any given price. 4. Show in a diagram the effect on the demand curve, the supply curve, the equilibrium price, and the equilibrium quantity of each of the following events. a. The market for newspapers in your town. Case 1: The salaries of journalists go up. Case 2: There is a big news event in your town, which is reported in the newspapers. The market for St. Louis Rams cotton T-shirts. Case 1: The Rams win the national championship. Case 2: The price of cotton increases.
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KW_Macro_Ch_03_End_of_Chapter_Problems - chapter 3 >...

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