AEC 251 problem set 1_fall 2018 (1)

# Marginal analysis compares the additional benefits of

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AEC 251 Fall 2018 – Problem Set #1 17. Using separate diagrams for each of the following events, show the effect on the demand curve, the supply curve, the equilibrium price, and the equilibrium quantity of each of the events. a) A FDA report reveals that consumption of mint leads to a decrease in body fat. What happens to the mint market? b) A survey indicates that chocolate is American’s favourite ice cream flavour. What is the effect on the chocolate ice cream market if a new innovation in production practices cuts the cost of vanilla extract flavouring by 80% and hence lowers the price of vanilla ice-cream? c) USA and Canada are major exporters of smoked salmon. Suppose, workers in Canada go on a strike. Show graphically the effect on the Canadian smoked salmon market? What is the effect on the smoked salmon market in the USA? 5
AEC 251 Fall 2018 – Problem Set #1 18. Show in a diagram the effect on the demand curve, the supply curve, the equilibrium price, and the equilibrium quantity of each of the following events. a) There is a hike in the wages of agricultural labourers. And at the same time, due to a change in the tax code, the incomes of farm operations that hire ag labor declines. b) The price of coffee increases. At the same time, robots for mechanical pruning and harvesting are developed which lower the cost of production of tea.
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