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Hw2answer - Econ 1 Winter 2008 Dr. Narag 1 Homework 2 :...

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Unformatted text preview: Econ 1 Winter 2008 Dr. Narag 1 Homework 2 : Demand and Supply (Answer Key) (1) (a) Since some people were probably eating oat bran because of this alleged characteristic, they will quit eating it and the demand curve will shift leftward (a decrease in demand). There is no change in the supply curve. Both the equilibrium price and the quantity of oat bran sold will be lower. (b) This is an increase in the cost of producing vegetables. For each quantity produced, agricultural producers will require a higher price (to cover the higher cost) in order to be induced to supply that quantity. Because of this, the supply curve will shift upward (a decrease in supply). There is no change in the demand curve. The equilibrium price will rise and the quantity of vegetables sold will decrease. Econ 1 Winter 2008 Dr. Narag 2 (c) Since it takes some time to build a house even when prices go up, we can think of the supply of housing at any point in time as being vertical (short term supply of housing). Due to the earthquake, the stock of houses was reduced by 10% and the supply curve shifts to the left (a decrease in supply). There is no change in the demand curve. The equilibrium price of housing will go up and the quantity of housing sold will go down (by...
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Hw2answer - Econ 1 Winter 2008 Dr. Narag 1 Homework 2 :...

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