ARE100AW09HW1 - University of California, Davis Department...

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University of California, Davis Department of Agricultural and Resource Economics Instructor: Monticha Sompolvorachai ARE 100A Assignment#1 Due Jan 16 th 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 techniques as does the production of B. Problem 2 : Use the demand and supply model to explain what happens to the equilibrium price and quantity in the following cases. You are to graph each scenario, clearly stating (i) whether there is shift in demand or supply, (ii) the price change direction and (iii) the quantity change direction. (a) Calculators. More schools require students to buy and use calculators; improved productivity shortens the time it takes to make calculators. (b) Gasoline. Oil production declines due to a crisis in the Middle East; people take more car vacations and drive more. (c) New homes.
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ARE100AW09HW1 - University of California, Davis Department...

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