ARE130_W09_MT01_KEY_Parts_III_IV

ARE130_W09_MT01_KEY_Parts_III_IV - ARE 130 Winter 2009...

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ARE 130 – Winter 2009 Exam #1 – KEY – Parts III and IV PRINT Your Name: KEY Problem #1 – Analysis Suppose a new discovery in avocado farming has just made avocado production cheaper. Also, the popularity and usefulness of avocados continues to grow. Use supply and demand analysis to predict how these changes will affect equilibrium price and quantity of avocados. Label you analysis and try to be organized. For this problem we wanted you to apply the concepts of derived demand and supply and work thru what happens. Not too many people used this approach so you lost 2 points for that. So if you showed just the shift of a single demand curve and a single supply curve they the most you could have gotten was 8 points. The other point was to make some comment on the marketing margin – assuming you used the derived demand/supply model. You could have said it remained the same or changed. Either was fine, but it was needed in the diagram to find the new equilibrium. Original retail demand Original derived demand - farm Original derived supply - retail Original farm supply Marketing margin step(s) where the supply moves out and demand shifts up (in) with the increased popularity. And then equilibrium sets in. We do not know where it is as we don’t know the magnitudes of the shifts. The tricky part is that the marketing stays the same if you make that assumption.
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ARE130_W09_MT01_KEY_Parts_III_IV - ARE 130 Winter 2009...

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