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ECON200 EXAM2 - Second Exam-Econ 200A Fall 2009 90 points...

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1 Second Exam-Econ 200A Fall 2009 90 points Answer Key Please write legibly and fully label your graphs. We will deduct points for illegible writing, unclear explanations, and unlabeled or mislabeled graphs. 1. (18 points) a. (8 points) During winter 2007, the adverse weather in California and Florida destroyed some of the orange crop produced in these states. However, the revenues of the orange growers increased. This was seen as a strange anomaly, where a smaller crop sold for more revenues than a larger crop of oranges. How do you explain this phenomenon? The demand for oranges is inelastic (with respect to changes in the price). In this case, as the output of oranges is lowered and price rises, the percentage change (increase) in price is higher than the percentage decline in quantity, therefore the revenues of the sellers or the expenditure by consumers on oranges will rise. b. (10 points) Consider apples and oranges as substitute goods. Use a graphical analysis to show the effect of adverse weather in California and Florida (orange producing states) on i) market price and quantity of oranges, ii) the market price and quantity of apples. Fully label your graphs and briefly explain. As the adverse weather negatively affects the supply of oranges, the market price of oranges goes up and quantities bought and sold decrease. In the market for apples, demand for apples rise and price and Q both go up.
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