Sample Midterm 1.docx

# Equilibrium quantity q1 the new equilibrium price p1

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equilibrium quantity, Q1, the new equilibrium price, P1, the new equilibrium, E', or the new production combination of goods. In the case of Demand and Supply analysis, write an explicit statement for the change in the equilibrium price and quantity and very briefly explain what happens and why. A) Supply and Demand.(8 points). The government imposes a price floor, which is lower than the market equilibrium price.

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B) PPF (12 points). Use the Production Possibility Frontier to represent the possible combinations of Milk Chocolate and Apples that an economy may produce at a given point in time (Make sure you label everything on your graph), and mark a point A on the curve, which represents some production combination with positive amounts of both goods/services.
Use the appropriate shift in or along the PPF to represent the effect of a new technological advancement in the milk chocolate industry. Is it possible for the economy, given the new PPF, to produce more of both goods? If yes, show it by putting a point B on the new PPF, which represents a production combination of both more milk chocolate and more apples as compared to point A. Starting at point B, show the impact of a "healthy living" trend, which induces people to eat healthier food (assume the citizens of this economy choose apples in order to eat healthy). Mark the new production combination as a point C on your graph (Hint: the new point should also be efficient). What will happen to the production of milk chocolate?

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Now, show the effect of the "healthy living" trend on the equilibrium price and quantity for apples using supply and demand curves. Start with an equilibrium in the market for apples and use the appropriate shift(s) in demand and/or supply. State clearly the effects on the equilibrium price and quantity and very briefly explain why.
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