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Unformatted text preview: ECOl 1 1- Principles of Macroeconomics Practice Questions Chapter 4- Demand and Supply 1. Indicate how you think each of the following would shift the demand in the indicated market: a. Incomes of buyers in the market for Adirondack vacations increase. Assume Adirondack vacations is a normal good. Buyers in the market for pizza read a study linking hamburger consumption to heart disease. Buyers in the market for Granny Smith apples learn of an increase in the price of red delicious apples. 2. How would each of the following affect the US. market supply curve for com? a. A new and improved crop rotation technique is discovered. b. The price offertilizer falls. c. The government offers new tax breaks for farmers. d. A tornado sweeps through Iowa. 3. Using supply and demand diagrams, show the effect of the following events on the market for sweatshirts. a. A hurricane in South Carolina damages the cotton crop. b. The price of leather jackets falls (assume leather jackets and sweatshirts are substitutes) c. All colleges require morning exercise in appropriate attire. (:1. New knitting machines are invented. 4. Consider the market for potato chips in your town. In a supply and demand diagram, show the effect on the market equilibrium price and quantity of potato chips due to the following events. sin-W999???» The price of pretzels (a substitute) declines. The price of potato rises. People in the town read a study linking potato chips consumption to heart disease. Someone starts a new potato chips company. New potato chips machine is invented, increasing productivity in factories. Income falls. Assume that potato chips are an inferior good for most people. Wage rate increases for workers in the potato chips companies. 5. A survey indicated that chocolate is Americans” favorite ice -cream flavor. For each of the following, use supply and demand diagrams to indicate the possible effects on demand, supply, or both as well as 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. A new report by the American Medical Association reveals that chocolate does, in fact, have significant health benefits. The discovery of cheaper synthetic vanilla flavoring lowers the price of vanilla ice cream. New technology for mixing and freezing ice cream lowers manufacturers’ costs of producing chocolate ice cream. ...
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