(a) Consider the market for bananas. Using the demand-supply diagrams, explain how each of the following...
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(a) Consider the market for bananas. Using the demand-supply diagrams, explain how each of the following scenarios would affect the equilibrium price and quantity of bananas. Clearly show the initial equilibrium and any shifts in the demand or supply curves for bananas and the resulting new equilibrium. Label your diagrams fully and provide a written explanation for your diagrams. i. The price of fertilizers increases. (5 marks) ii. A new study featured in popular news outlets shows that the nutritional benefits of banana are less than previously thought. (5 marks) (b) Suppose that the government wants to reduce the problems with alcohol consumption and increases the size of the tax that is imposed on alcohol producers. Use a demand and supply diagram to answer the following questions. i. Discuss the impact on the price that buyers will pay and the price the sellers will receive. (2 marks) ii. Assuming that demand for alcohol consumption is perfectly inelastic, while the supply curve is an upward sloped straight line: who would bear the burden of the tax, that is consumers or producers? (2 marks) iii. Will there be any deadweight loss when the demand for alcohol consumption is perfectly inelastic? (1 mark) (a) Consider the market for bananas. Using the demand-supply diagrams, explain how each of the following scenarios would affect the equilibrium price and quantity of bananas. Clearly show the initial equilibrium and any shifts in the demand or supply curves for bananas and the resulting new equilibrium. Label your diagrams fully and provide a written explanation for your diagrams. i. The price of fertilizers increases. (5 marks) ii. A new study featured in popular news outlets shows that the nutritional benefits of banana are less than previously thought. (5 marks) (b) Suppose that the government wants to reduce the problems with alcohol consumption and increases the size of the tax that is imposed on alcohol producers. Use a demand and supply diagram to answer the following questions. i. Discuss the impact on the price that buyers will pay and the price the sellers will receive. (2 marks) ii. Assuming that demand for alcohol consumption is perfectly inelastic, while the supply curve is an upward sloped straight line: who would bear the burden of the tax, that is consumers or producers? (2 marks) iii. Will there be any deadweight loss when the demand for alcohol consumption is perfectly inelastic? (1 mark)
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Macroeconomics Principles, Applications, and Tools
ISBN: 978-0132555234
7th Edition
Authors: Arthur O Sullivan, Steven M. Sheffrin, Stephen J. Perez
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