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Short Answer
1.
Consider the market for lowfat organic yogurt.
a.
(3 points) Using a simple supply and demand graph, label the equilibrium price
(P*) and quantity (Q*) of lowfat organic yogurt.
Clearly label the supply curve,
the demand curve and the axes.
b.
(5 points) Suppose that the price of organic sugar, an input to the production of
lowfat organic yogurt, increases.
In addition, suppose that the price of granola
falls.
On your graph, illustrate what will happen to the equilibrium price and
quantity of lowfat organic yogurt as a result of these two factors.
If you need to
make additional assumptions in order to answer this question, clearly state what
those assumptions are.
a.
See below.
b.
In the picture, it is assumed that granola and yogurt are complementary goods.
The equilibrium price will rise, but equilibrium quantity could increase or
decrease depending on the size of the shifts in supply and demand.
Quantity
Price
S1
D1
Q1*
P1*
S2
D2
P2*
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View Full Document2.
Suppose that Jessica likes to go to drink tea and eat cookies.
Suppose that the price of a
box of tea is $6 and the price of a package of cookies is $5.
In addition, suppose that
Jessica has $30 per month to spend on tea and cookies.
a.
(4 points) Sketch Jessica’s monthly budget constraint for tea and cookies, placing
tea on the xaxis and cookies on the yaxis.
Be sure to label the yintercept, the x
intercept and the slope.
b.
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 Spring '08
 TANG
 Microeconomics, Supply And Demand

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