Solution to Chapter_4

# Solution to Chapter_4 - Problems and Applications(Textbook...

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Problems and Applications (Textbook, page 87 – 88)

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Problems and Applications 1. Explain each of the following statements using supply-demand diagrams. a) “When a cold snap hits Florida, the price of orange juice rises in supermarkets throughout the country.”
a. Cold weather damages the orange crop, reducing the supply of oranges. This can be seen in the following figure as a shift to the left in the supply curve for oranges. The new equilibrium price is higher than the old equilibrium price.

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Problems and Applications 1. Explain each of the following statements using supply-demand diagrams. b) “When the weather turns warm in New England every summer, the price of hotel rooms in Caribbean resorts plummets.”
People often travel to the Caribbean from New England to escape cold weather, so the demand for Caribbean hotel rooms is high in the winter. In the summer, fewer people travel to the Caribbean, because northern climes are more pleasant. The result, as shown in the following figure, is a shift to the left in the demand curve. The equilibrium price of Caribbean hotel rooms is thus lower in the summer than in the winter, as the figure shows.

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Problems and Applications 1. Explain each of the following statements using supply-demand diagrams. C) “When a war breaks out in the Middle East, the price of gasoline rises, and the price of a used Cadillac falls.”
When a war breaks out in the Middle East, many markets are affected. Because a large proportion of oil production takes place there, the war disrupts oil supplies, shifting the supply curve for gasoline to the left, as shown in the left Figure . The result is a rise in the equilibrium price of gasoline. With a higher price for gasoline, the cost of operating a gas-guzzling automobile like a Cadillac will increase. As a result, the demand for used Cadillacs will decline, as people in the market for cars will not find Cadillacs as attractive. In addition, some people who already own Cadillacs will try to sell them. The result is that the demand curve for used Cadillacs shifts to the left, while the supply curve shifts to the right, as shown in the right hand side Figure. The result is a decline in the equilibrium price of used Cadillacs.

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Problems and Applications 2. “An increase in the demand for notebooks raises the quantity of notebooks demanded but not the quantity supplied.” Is this statement true or false? Explain.
Problems and Applications The statement, in general, is false. As the left

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Solution to Chapter_4 - Problems and Applications(Textbook...

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