Description
With graph
Problems:
1. a. When the price of olive oil goes up, what probably happens to the demand for corn oil?
b. If consumers thinks that the price of tomatoes will go up next week, what is likely to happen to demand for tomatoes today?
Required: Graph the markets for corn oil; tomatoes
2. Redraw and shade producer surplus area assuming the following: the market price is $50 per barrel; the market quantity sold at that price is 40 units. Further, assume the supply curve starts at a value of 5$ and follows the normal shape of a supply curve. Recall that, for a triangle, area = (1/2) 3 Base x Height. Solve (compute) dollar value for the producer surplus area. (You never thought you’d use that equation unless you became an engineer, did you?)
3.Graph each separately:
a. When demand increases, graph what happens to price and quantity in equilibrium?
b. When supply increases, graph what happens to price and quantity in equilibrium?
c. When supply decreases, graph what happens to price and quantity in equilibrium?
d. When demand decreases, graph what happens to price and quantity in equilibrium?
4. Graph each separately:
a. If the price of margarine decreases, graph what happens to the demand for butter? Show what happens, graphically, to the equilibrium quantity and price for butter.
b. If the wage of sugar cane harvesters increased what does the graphical effect look like the market for sugar cane?
c. If a new study emphasized the negative consumer health effects of sugar, then how would that effect the equilibrium quantity for sugar?
d. If Redwood City decides to impose rent control on apartments, graph the effect on the rental apartment market.
Explanation & Answer
Kindly see attached file with the solution to the different questions.I've included both a doc and a pdf version so that you can use the one that best fits you
Question 1.
a) Since corn oil and olive oil are substitutes, an increase in the price of olive oil will most probably
result in an increase in the price of corn oil. As a result, both the corn oil and the olive oil demand
curves will shift to the right. This scenario is presented in the following graphs. Note that the
price/demand in these graphs is not necessarily related to their real price.
b) Since tomatoes today or next week are regarded as substitutes, if people believe that the price of
tomatoes will increase next week, the demand of tomatoes will most probably increase today. As in
the previous example, the demand curve is shifting to the right as the price of a substitute object
increases. The demand curve of the tomato market is represented below:
Question 2.
Data:
Market price = $50
Market quantity sold at $50 = 40 barrels
Initial start value = $5
Step 1. Build the supply curve with the above data
Note that the normal shape of the supply curve is a straight line. Taking this into account, you need to draw
the straight line that passes through (0,5) and (40,60). The resulting supply curve is shown in the following
image.
Step 2. Shade the surplus area considering the market price of $50
Step 3. Solution of the dollar value of the production surplus area:
The dollar value is calculated taking into account that the production surplus area is a rectangle triangle of
base = 50 – 5 = 45 and height = 40.
Taking this into account,
𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑜𝑛 𝑠𝑢𝑟𝑝𝑙𝑢𝑠 𝑎𝑟𝑒𝑎 =
45 ∗ 40
= 900
2
Question 3.
Steps to solve this exercise:
Evaluate how the demand curve changes with the proposed scenario. In this regard, the demand
curve will shift right if demand increases or left if demand decreases
Evaluate how the supply curve changes with the proposed scenario. In this regard, the supply curve
will shift right if the supply...
Review
Review
