ARE100AW09HW1KEY

ARE100AW09HW1KEY - University of California, Davis...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
University of California, Davis Department of Agricultural and Resource Economics Instructor: Monticha Sompolvorachai ARE 100A Assignment#1 KEY Winter 2009 Problem 1 : Use supply and demand curve shifts to illustrate the effect of the following events on the market for product B. For each part you must (i) draw a separate graph and (ii) make clear the direction of the change in both price and quantity sold. Make sure you label your axes properly. (a) Product B becomes more fashionable. (b) Income declines and product B is a normal good. (c) The price of substitute product C falls. (d) The price of complementary product D falls. (e) Foreign tariff barriers on B are eliminated. (f) A decline in the number of firms in industry B (g) The expectation that the equilibrium price of B will be lower in the future than it is currently. (h) An increase in the price of resources required in the production of B. (i) The granting of a 50-cent per unit subsidy for each unit of B produced (j) A decline in the price of product A, a good whose production requires substantially same techniques as does the production of B. (a) Product B becomes more fashionable. Causes an increase in demand (i.e., the demand curve shifts right.) Price , Quantity increases (b) Income declines and product B is a normal good. A decrease in demand (i.e., the demand curve shifts left). Price and quantity decrease. (c) A The price of substitute product C falls. Causes a decrease in demand (i.e., the demand curve shifts left). Price , Quantity . (d) The price of complementary product D falls. Causes an increase in demand (i.e., the demand curve shifts right.) Price , Quantity increases (e) Foreign tariff barriers on B are eliminated. An elimination of our tariffs will cause a change in quantity demanded. Price decreases and quantity sold increases. (Demand does not shift) Notice that we did not say that an increase in the quantity sold is only from domestic producers. (f) A decline in the number of firms in industry B Causes a decrease in supply (i.e., the supply curve shifts left.) Price , Quantity
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
(g) The expectation that the equilibrium price of B will be lower in the future than it is currently. This expectation implies that some consumers will not buy at the ongoing price, which means that this expectation will cause an increase in supply (i.e., the supply curve shifts right.) Results then Price , Quantity increases (h) An increase in the price of resources required in the production of B. Causes a decrease in supply (i.e., the supply curve shifts left.) Price , Quantity (i) The granting of a 50-cent per unit subsidy for each unit of B produced. One way to model this policy is to shift the supply curve to the right resulting in a lower price and
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 5

ARE100AW09HW1KEY - University of California, Davis...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online