Question

For each of the following separate parts, you are required to draw a graph.

(a) Consider the market for oil. Suppose the government provides subsidies for companies to use renewable energies. Draw a graph to show how the price elasticity of demand for oil will change.

(b) A country produces blueberry pies and pumpkin pies. Suppose a disease occurs, which significantly reduces the farm yield of blueberries. The disease does not affect the production of pumpkins. Draw a graph to show how the PPF changes. Assume that the opportunity cost is increasing.

(c) Consider the market for coffee. If the price of coffee mate increases, draw a graph to show the change in the equilibrium of the market for coffee.

Answer 1

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Question:

a). Answer:

The government provides subsidies for companies to use renewable energies so it will decrease demand for oil and demand curve shift left from D1 to D2 that change (decrease) price and quantity demand from P1 to P2 and Q1 to Q2 respectively.

Graph:

b). Answer:

According to the question a country produces blueberry pies and pumpkin pies. Suppose a disease occurs, which significantly reduces the farm yield of blueberries. The disease does not affect the production of pumpkins. So, PPF curve will shift left from AB to AB1.

Graph:

c). Answer:

If the price of coffee mate increases, it will decrease demand for coffee and demand curve will shift left from D1 to D2 and new equilibrium point is E2 where equilibrium price and quantity are P2 and Q2.

Graph:

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