Econ 1 Practice Final 3 Short Answer

# Econ 1 Practice Final 3 Short Answer - Short Answer 1...

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Short Answer 1. Consider the market for low-fat organic yogurt. a. (3 points) Using a simple supply and demand graph, label the equilibrium price (P*) and quantity (Q*) of low-fat 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 low-fat 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 low-fat 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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2. 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 x-axis and cookies on the y-axis. Be sure to label the y-intercept, the x- intercept and the slope. b.
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