Econ1-Fall2010-PS2-sols

Econ1-Fall2010-PS2-sols - Econ 1 Problem Set #2 Solutions...

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Econ 1 Problem Set #2 Solutions Fall 2010 1. For each of the following, draw a diagram that illustrates the likely effect on the market for eggs. Indicate in each case the impact on equilibrium price and equilibrium quantity. The following graphs illustrate each case. Comments follow below. a) b) c) e) d) PP P P P QQ Q Q¹ Q² Q¹ Q² a. A surgeon general warning that high-cholesterol foods can cause heart attacks. The risk of heart attack will cause a change in preferences. Demand will go down. This will cause a decrease in quantity as well as a decrease in price. b. A decrease in the price of bacon, a complementary product. A decrease in the price of a complementary good will cause an increase in demand. This causes an increase in price and quantity. c. An increase in the price of chicken feed. The increase in the price of chicken feed will constitute an increase in the cost of inputs on the supply side. This will cause a decrease in supply, which in turn causes higher prices and lower quantity.
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This note was uploaded on 06/15/2011 for the course ECON 1 taught by Professor Aben during the Fall '07 term at City College of San Francisco.

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Econ1-Fall2010-PS2-sols - Econ 1 Problem Set #2 Solutions...

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