1) Predict the impact on the market of each of the following events. Provide a graph and a brief explanation
for each event.
a) Market for Canadian wine: an early frost destroys a sizable percentage of the grape crop in British Columbia
b) Market for smart phones: a technological advance reduces the costs of producing smart phones
c) Market for houses in Vancouver: house prices are expected to rise significantly in the future
d) Market for fast food: the public shows greater concern over high sodium and cholesterol in fast foods: there is an increase in the minimum wage
e) Market for beer: the government raises the legal drinking age: brewery unions negotiate a significant increase in wages
2) For each of the following, determine if the statement is referring to a change in demand, change in quantity demanded, change in supply or a change in quantity supplied. If applicable, indicate the resulting change in the equilibrium price and quantity. Provide a graph and a brief explanation for each statement.
a) Prices of personal computers fall despite a substantial increase in the number sold
b) Apartment rental rates rise as student enrollment swells.
c) Lower airfares reduce the number of empty seats on regularly scheduled flights (Hint: There is a fixed supply of seats on regularly scheduled flights)
d) Increases in the price of Christmas trees cause trees to be planted on land previously used by dairy farmers (Note: Answer for both the market for Christmas trees and the market for milk)
e) In 1998 the ice storm that hit the province of Quebec not only impacted the market for portable generators in Quebec, but also in other regions of Canada.
3) The demand and supply schedules for athletic shoes sold at Trendy Shoes Inc. in Pacific Center are as follows (in pairs of shoes per week):
- Quantity Demanded
a) Graph the supply and demand curves and indicate the equilibrium price and quantity.
b) Suppose there is a change in teenage fashion such that a substitute shoe, Mikee, becomes more popular. As a result, the quantity demanded of athletic shoes at trendy Shoes Inc. falls by 30 units per week at each and every price. Determine the new quantities demanded at each price and plot them on your graph.
c) At the initial equilibrium price determined in part (a), what market pressure on price is created by this change in consumer tastes? Why?
d) How does price respond to this pressure? How do quantities supplied and demanded react?
e) After price has adjusted to the new equilibrium, what is the equilibrium quantity and price?
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