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Analyzing the Changes in Non-Price Factors: Demand and Supply Curves for Several Markets

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1. Consider the demand and supply curves for several markets - the market for mineral resources, the market for wheat, the market for sugar, and the market for motor homes. Indicate whether the effect of each of the following is an upward or downward movement along a given demand (or supply) curve, i.e. no effect on demand or supply, or instead involves an outward or inward shift in the relevant demand (or supply) curve for the product in question. How will the market equilibrium price and quantity change from the original equilibrium? (Note: Think only about the short-run effects of these changes and do not concern yourself with the multiple shifts due to long-run effects.) Explain your answers.

a) The mineral market: The costs of producing mineral resources rise as the resources are depleted and it becomes harder to extract the mineral deposits from the earth.

b) The wheat market: Due to floods in the Midwest, half of the wheat crop in the United States is destroyed. At the same time, the price of oats (a substitute for wheat) decreases due to a sharp rise in the number of farmers growing oats in response to consumer demand for health food.

c) The sugar market: There is a drought in the sugar cane fields of Hawaii.

d) The motor home market: There is a decrease in the average price of new motor homes.

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Solution Summary

This solution outlines the effect the change has on the market demand curve, the market supply curve, the equilibrium price and the equilibrium quantity. This solution is provided in the attached Word document.

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3. Demonstrate, using supply and demand analysis, the effect on the equilibrium price and quantity of new hybrid automobiles when the following occurs. Using graphs similar to the notes in Week One, describe the change in the equilibrium price and quantity, and explain your answer. Is the equilibrium price higher or lower, or is the change indeterminate? Is the equilibrium quantity higher or lower, or is the change indeterminate?

a. Incomes increase

b. Interest rates decrease

c. The price of batteries used in the production of these vehicles decreases

d. price of gasoline decreases

4. Determine if the demand for the following products is price elastic or price inelastic, and explain your answer.

a. Box of cereal sold in a grocery store

b. Gasoline as a commodity

c. Gasoline sold at a local gasoline station

d. Fast food sold at a restaurant

e. Hotel rooms for people planning a vacation

f. Hotel rooms for people on business to meet an important client

g. Clothes sold in a discount retailer

h. Newspapers

i. Fresh peas

j. Major League Baseball tickets

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