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1) Discuss, and illustrate with a graph, how each of the following events will affect the market for coffee:

1a) A blight on coffee plants kills off much of the Brazilian crop.
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It will increase the inputs price, and rise the suppliers production cost.
P

Therefore will DECREASE the quantity supply, And the supply curve will move to the LEFT.

S2

S1

P2
P1 D1 Q2 Q1
2

1b) The price of tea declines.

The tea and coffee are the substitutes. When the price of tea a increase, people will decrease the demand of coffee.
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Therefore will DECREASE the quantity demand, And the demand curve will move to the LEFT.

P P1 S1

P2

D2 Q2Q1

D1
3

1c) Coffee workers organize themselves into a union and gain higher wages.
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Union and higher wages will increase the inputs price, and rise the suppliers production cost. P Therefore will DECREASE the quantity supply, And the supply curve will move to the LEFT. S2 S1

P2

P1 D1
Q2 Q1
4

1d) Coffee is shown to cause cancer in laboratory rats.

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The laboratory rats will affect the people dont drink the coffee and decrease the demand of coffee.
P Therefore will DECREASE the quantity demand, And the demand curve will move to the LEFT. P1 S1

P2 D1 D2 Q2 Q1
5

1e) Coffee prices are expected to rise rapidly in the near future.
The expectation of the suppliers will reduce supply now, and save some inventory to sell later at the higher price. The expectation of the customers will rise the demand now. Therefore will INCREASE the quantity demand and DECREASE the quantity supply, And the demand curve will move to the RIGHT and the supply curve will move to the LEFT.
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P S1 P2

P1

D1
6 D2

Q1 Q 2

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2. Consider the markets for DVDs, TV screens, and tickets at movie theaters.

2a) For each pair, identify whether they are complements or substitutes:
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2ai) DVDs and TV screens They are the complements.

When the price of DVDs rise, people will REDUCE to buy TV screens and the demand curve of TV screens will move to LEFT.

2aii) DVDs and movie tickets They are the substitutes.

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When the price of DVDs rise, people will buy MORE movie tickets and the demand curve of movie tickets move to RIGHR.

2aiii) TV screens and movie tickets

2b) Suppose a technological advance reduces the cost of manufacturing TV screens. Draw a diagram to show what happens in the market for TV screens. Technological advance reduce the cost Supply (S1 S2) P Price (P1 P2) Quantity (Q1 Q2)

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TV Screen

S1

S2

P1 P2 D1
Q Q
10

2c) Draw two more diagrams to show how the change in the market for TV screens affects the markets for DVDs and movie tickets. Supply of TV screens , Price , Quantity

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DVD(complement) Demand (D1D2) Price(P1 P2) Quantity(Q1 Q2)

movie tickets Demand (D1D2 )

Substitute

Price(P1 P2)

P
P2

DVD S1

P
P1

Movie Tickets S1

P1

P2

D1
Q1Q

D2
Q
Q2 Q1

D1 Q

11

D2

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3. Using the demand curve, show the effect of the following events on the market for beef:

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4) Using the demand curve, show the effect of the following events on the market for beef:

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4a) Consumer income increases.

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Base on the demand curve, When Consumer income increases, they will rise the demand of beef.

Beef

Therefore will INCREASE the quantity demand, And the demand curve will move to the RIGHT

P1

14

Q1 Q2

D1

D2

4b) The price of beef increases.

Base on the demand curve, When the price of beef increases, customer will reduce the demand of beef. Therefore will DECREASE the quantity demand and increase the price, And move up along on demand curve. P Beef
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P2

P1

A
15

Q1 Q2

D1

4c. An outbreak of mad cow disease occurs.

Base on the demand curve, Demand of beef (D1D2)

Price (P1P2)

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Quantity (Q1 Q2)

P

Beef
S1

P1

P2

D1 Q2
16

Q1

D2

4d) The price of chicken (a substitute) increases.

Base on the demand curve, Chicken and beef are the substitutes. When the price of chicken increases, customer will rise the demand of beef. P

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Therefore will INCREASE the quantity demand, And the demand curve will move to the RIGHT

Beef

P1 D2 Q2 Q

D1

17

4e) The price of barbecue grills (a complement) increases.

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Base on the demand curve, Barbecue grills and beef are the complements. When the price of barbecue grills increases, customer will reduce the demand of beef. Beef P Therefore will DECREASE the quantity demand, And the demand curve will move to the LEFT.

P1

18

Q2

D2 Q

D1

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5) What effect will each of the following have on the supply of auto tires?

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5a) A technological advance in the methods of producing tires.

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P1 P2

Q Q

better skills Supply increase Hences, S1 shifts to S2 Price decrease (P1 to P2) Quantity Supply increase (Q1 to Q2)

Auto tires P S1

S2

20

D1

5b) A decline in the number of firms in the tire industry.

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Auto tires
Tires firms decline Supply decrease form S1 to S2 Price increase (P1 to P2) Quantity Supply decrease from Q1 to Q2

S2

S1

P2 P1

21

Q Q

D1

5c) An increase in the prices of rubber used in the production of tires.

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As prices are changed, shift along the curve Move down along the curve to a lower P & lower Q

Auto tires P S1

P2 P1

22

D1

5d)The expectation that the equilibrium price of auto tires will be lower in the future than currently.
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5e) A decline in the price of the large tires used for semi trucks and earth-hauling rigs(with no change in the price of auto tires).

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5f) The levying of a per-unit tax on each auto tire sold.

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5g) The granting of a 50-cent-per-unit subsidy for each auto tire produced.
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Auto tires P
If there is subsidy, supply will increase From S1 to S2 Price decrease from P1 to P2 Q increase from Q1 to Q2

S1

S2

P1 P2

Q Q

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D1