Midterm2005ASA

Midterm2005ASA - Short Answer: Please write your answer in...

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Short Answer: Please write your answer in the space provided. 1. (8 points) Hurricane Katrina has impacted many levels of the U.S. economy. First, the supply of grain has decreased because grain suppliers have been unable to ship much of their grain harvest down the Mississippi River. Naturally, this had led to an increase in the price of grain. In addition, the price of fruit has also gone up, again because of transportation problems. Use a supply and demand graph to show how the increase in the price of grain and the increase in the price of fruit are likely to affect the market for cereal. Note: In answering this question, assume that grain is an input to the production of cereal, but fruit is not. If you need to make further assumptions, state clearly what they are. Let’s assume that cereal and fruit are complementary goods (maybe people like to put fresh fruit on their cereal). D1 S1 Q (Cereal) P D2 S2 Q1 Q2 P1 In this case, the supply curve will shift back because the cost of production has increased
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Midterm2005ASA - Short Answer: Please write your answer in...

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