Hi k9queen!!
I post my answers here as a comment, you will see if they are useful
for you:
Question 1:
a)winter starts and the weather turns sharply colder:
In a colder weather people demand more hot chocolate, then the demand
curve will shift to the right in consequence equilibrium market price
and quantity will both increase.
b)the price of tea, a substitute for hot chocolate, falls:
Because tea and hot chocolate are substitutes a decrease in the price
of tea will cause the demand curve for hot chocolate to shift to the
left. Then the equilibrium price and quantity of hot chocolate will
fall.
d)the price of whipped cream falls:
Whipped cream and hot chocolate are complements, then if the price of
the whipped cream falls, the demand curve for hot chocolate will shift
to the right, so the equilibrium price and quantity of hot chocolate
will increase.
e)A better method of harvesting cocoa beans is introduced:
This will cause a decrease of the price of the cocoa beans that is an
input in hot chocolate (this happens because the supply curve for
cocoa beans will shift to the right, this cause a lower equilibrium
price of cocoa beans). So we have that the price of an input decrease,
then the supply curve of hot chocolate will shift to the right,
lowering equilibrium price and raising equilibrium quantity.
f)The surgeon General of the U.S. announces that hot chocolate cures
acne:
This announcement will cause a greater demand of hot chocolate and the
demand curve will shift to the right, then the equilibrium price and
quantity will increase.
g)Protesting farmers dump millions of gallons of milk, causing the
price of milk to rise:
If the price of milk increase we will have to possibilities:
As a substitute of hot chocalate, an increase of the price of milk
will cause a shift to the right of the demand curve of the hot
chocolate, then the equilibrium market price and quantity will
increase.
But milk is also an input to hot chocolate (if you donīt believe that
leave this part of the answer and consider it finished with the last
paragraph), then an increase of the price of milk will cause a shift
of the supply curve of the hot chocolate to the left, raising
equilibrium price and lowering equilibrium quantity.
Considering both effects working together we have that in both cases
the equilibrium price increases, so we will have an increase in the
equilibrium price. But in one case, when the milk is a substitute, the
quantity increases and when the milk is considered as an input the
quantity decreases, then we canīt be sure about the final result of
the combined effect, depending on how the supply curve of hot
chocolate shifts to the left we will have an increase, a decrease or
the same equilibrium quantity.
h) consumer income falls because of a recession and hot chococlate is
considered a normal good:
Considering hot chocolate as a normal good, when consumer income
falls, the demand curve for hot chocolate will shift to the left.
Equilibrium price and quantity will fall.
i)producers expect the price of hot chocolate to increase next month:
If producers anticipate a price rise in the next month, they may
prefer to store their products and sell them later. As a result, they
will supply less now so the current supply of hot chocolate would
decrease. This means a shift of the supply curve to the left; the
equilibrium price of the hot chocolate increases while quantity
decreases.
j)currently, the price of hot chocolate is $0.50 per cup above
equilibrium:
If the price of the hot chocolate is above equilibrium, we have an
incentive to increase the supply, but this supply exceeds the quantity
of the good demanded. A surplus is the result. This surplus is
recognized by the sellers (because their inventories are increased -
they bought more inputs to have the possibility to offer more hot
chocolate) and this gives them an incentive to lower the price (to
reduce the inventories), thus sending the price downward toward its
equilibrium level.
See for more reference "Equilibrium Price" from the Texas A&M
University-Commerce website (just download it and open with Ms Word):
http://www.tamu-commerce.edu/ecofin/courses/funderburk/231/notes/EquilibriumPrice.rtf
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Question 2:
The principal foods of the Floritanians are green eggs and ham. It
cost exactly twice as much to produce a pound of green eggs as a pound
of ham. The more green eggs that are produced, the lower the price
they sell for, and similarly with ham.
a)You are producing both green eggs and ham. Green eggs sell for
$3/pound; so does ham. How could you increase your revenue without
changing your production cost?
You must produce 1 pound less of green eggs and 2 pounds more of ham
(or anothaer small change in the amounts keeping the 2:1 ratio); since
the eggs cost twice as much per pound to produce, your production cost
is unchanged. Your revenue on eggs has gone down by about $3, your
revenue on ham has gone up by about $6, so your total revenue is up by
about $3. This small change in the total output does not change the
price very much.
b)what will be the result on the prices of green eggs and ham.
Since you are now producing less green eggs, their price will go up a
little; since you are producing more ham, its price goes down a
little.
c) If everyone acts rationally, what can you say about the eventual
prices of green eggs and ham in Floritania.
The price of green eggs will be twice the price of ham. As you can see
in the parts a) and b), there are a tendency to produce less eggs and
more ham (to increase the revenues), these actions will move the price
ratio towards the cost ratio.
For more references please visit the following pages:
At this pages you will find all the graphs that complement the
answers.
"Principles of Macroeconomics, 1st Canadian Edition - Chapter 4",
Cyberlecture page at McGraw-Hill:
http://highered.mcgraw-hill.com/sites/0070889775/student_view0/chapter4/cyberlecture.html
"Equilibrium Analysis" at The Digital Economist website:
In this page you will find interactive Supply-Demand graphs, in these
you can visualize the changes when prices and/or quantities vary.
http://www.digitaleconomist.com/equilibrium.html
Please feel free for ask me for a clarification.
Best regards.
livioflores-ga |
