1. For each of the following scenarios, graph the original and new equilibrium. Also, indicate whether...

1. For each of the following scenarios, graph the original and new equilibrium. Also, indicate whether the effect on the equilibrium price would be to increase it or decrease it. Likewise, indicate whether the equilibrium quantity would increase or decrease. Be sure to answer any additional questions that are included.

a. The U.S. government finally stops making pennies (made mostly of copper) because consumers don’t want them and throw them in the trash. What would happen in the copper market? (5 points)

b. The pilot’s union at all major air carriers has demanded and been granted a 20 percent pay increase. What will happen in the air travel market? How would your result differ if the demand for air travel was more elastic at the original equilibrium price? (5 points)

c. Vietnam enters the market for coffee with large amounts of coffee produced at very low marginal cost. What happens in the market for sugar? (5 points)

d. What would happen in the coffee market if a severe winter were to kill all of the coffee plants in Brazil? Would coffee producers from Nigeria be better off? Why? (5 points)

Expert Solution

1

a) The demand for copper will fall. The demand curve will shift to the left ( decrease). The equilibrium price will fall from p0 to p1, and quantity from q0 to q1.

b) The supply curve in the air travel market will shift to the left as the cost of production of air travel will increase. The equilibrium price of air travel will increase and quantity of air travel will fall. If the demand is elastic than the demand will fall by a higher percentage.

c) Coffee and sugar are complementary products. If the price of coffee falls, then demand for sugar will increase. The equilibrium price and quantity of sugar will increase.

d) The supply of coffee in Brazill will fall. The supply curve will shift to the left ( decrease). The equilibrium price of coffee in Brazil will increase and quantity will fall. The Nigerian producers will be better off as demand for Nigerian coffee would increase, the equilibrium price and quantity will increase.

Rahul Sunny answered 2 years ago

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1. For each of the following scenarios, graph the original and new equilibrium. Also, indicate whether...

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