1.Comparative Statics

Explain how the following event will affect the demand and supply curves forDiet Soda.In each case explain whether the demand and supply curves will (i) move to the left; (ii) move to the right; or (iii) not move.

A.The cost of artificial sweetener increases (e.g., aspartame)

i. How will this affect the demand and supply curves in the short-run?EXPLAIN WHY

ii. Show on a demand-supply graph how this affects the equilibrium price and quantity.Make sure your demand and supply curves follow the laws of demand and supply; the curves, and axes areappropriately labeled;arrows indicating movement of curvesare shown;and theold and new equilibrium prices are quantitiesare clear. Show clearly whether the new equilibrium prices and quantities are higher or lower than the old equilibrium.

B.A new health study finds that artificial sweeteners cause cancer

i. How will this affect the demand and supply curves in the short-run?EXPLAIN WHY

iii. Show on a demand-supply graph how this affects the equilibrium price and quantity.Make sure your demand and supply curves follow the laws of demand and supply; the curves, and axes areappropriately labeled;arrows indicating movement of curvesare shown;and theold and new equilibrium prices are quantitiesare clear. Show clearly whether the new equilibrium prices and quantities are higher or lower than the old equilibrium.