06 May WHAT IS THE OPPORTUNITY COST OF MOVING FROM POINT B TO POINT C?
For each of the following specified markets, sketch a graph of the initial market demand (D0) and supply (S0) curves and indicate the initial equilibrium price (P0) and equilibrium quantity (Q0).
Situation Specified Market
1. People’s income increases Market for brand new cars
2. People’s income decreases Market for goods sold in secondhand shops
3. Minimum wage increases Market for fast food
4. Prices of bicycles are set below P0 Market for bicycles
5. Winter clothing to go on sale next month Market for winter clothing
6. Increase in urban residents Market for apartment in urban areas
7. Price of movie tickets decreases Popcorn at movie theater
8. New technology allows corn seeds to resist pests and droughts Market for corn
9. Increase in number of coffee shops in downtown Madison Market for coffee
10. Price of cereal increases Market for milk
11.College tuition increases College enrollment
12. Winter storm Juno damages the infrastructure of skiing resorts Market for skiing resorts
13. Price of shrimp is set above P0 Market for shrimp
14.Flu season begins Market for flu vaccines
15. Cost of building material, such as cement, increases Market for houses
Describe how each of the situations listed in the table below will affect the initial demand and supply curve by drawing a sketch of the shift (if there is any) or a movement along the curve. Label in your graph the new equilibrium price (P1) and new equilibrium quantity (Q1).
2. Name three products whose demand is likely to increase rapidly if the following demographic groups increase at a faster rate than the population as a whole:
a. Teenagers
b. Children under age five
c. Recent immigrants
3. According to an article in the Wall Street Journal about the effect of increases in the demand for corn: “Farmers are likely to cut back on some crops, such as soybeans and rice, to make room for the additional corn.” Use a demand and supply graph to analyze the effect on the equilibrium price of soybeans resulting from the increase in the demand for corn.
4. The demand for watermelons is highest during summer and lowest during winter. Yet watermelon prices are normally lower in summer than in winter. Use a demand and supply graph to demonstrate how this is possible. Be sure to carefully label the curves in your graph and to clearly indicate the equilibrium summer price and the equilibrium winter price.
5. Draw a production possibilities frontier that shows the trade-off between the production of cotton and the production of soybeans.
a. Show the effect that a prolonged drought would have on the initial production possibilities frontier.
b. Suppose genetic modification makes soybeans resistant to insects, allowing yields to double. Show the effect of this technological change on the initial production possibilities frontier.
6. Suburbia can produce two goods: bread and butter using its available resources. The following table describes three points that lie on Suburbia’s production possibility curve.
Point Quantity of Bread Quantity of Butter
A 80 0
B 75 10
C 60 20
a. What is the opportunity cost of moving from point A to point B?
b. What is the opportunity cost of moving from point B to point C?
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