The following figure depicts possible demand and supply curves in a competitive market for apples. Price...
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The following figure depicts possible demand and supply curves in a competitive market for apples. Price 0 C 8 S 2 S1 Quantity In this figure two possible demand curves are labelled D1 and D2; two possible supply curves are labelled S1 and S2 and four possible equilibrium points are labelled A, B, C and E. These labels can be used to describe various scenarios in terms of shifts in demand and/or supply curves. (a) Initial equilibrium is at point E. Give an example of changes in the market conditions that will move equilibrium to point A (give examples of specific events, not just the direction of the shifts of demand or supply). (5 marks) (b) Initial equilibrium is at point B. Give an example of changes in the market conditions that will move equilibrium to point C (give examples of specific events, not just the direction of the shifts in demand or supply). (5 marks) (c) Initial equilibrium is at point B. A subsidy is introduced in this market that offers a payment to farmers for each kg of apples produced. Where is the new equilibrium? Explain all the steps. (5 marks) (d) "Suppose that initial equilibrium is at B. When a subsidy is introduced, the new equilibrium will not result in the deadweight loss because it will lead to a higher equilibrium quantity and apples are beneficial for health." Do you agree with this statement? Explain your answer. (5 marks) (e) Consider two time periods, 1 and 2. You don't know what was the original equilibrium in Period 1. But you know that as a result of adverse weather conditions impacting the production of apples in Period 2, the market equilibrium in Period 2 is located at point E. Can you deduce what was the original equilibrium in Period 1? How many possibilities are there? Explain all steps. (5 marks) The following figure depicts possible demand and supply curves in a competitive market for apples. Price 0 C 8 S 2 S1 Quantity In this figure two possible demand curves are labelled D1 and D2; two possible supply curves are labelled S1 and S2 and four possible equilibrium points are labelled A, B, C and E. These labels can be used to describe various scenarios in terms of shifts in demand and/or supply curves. (a) Initial equilibrium is at point E. Give an example of changes in the market conditions that will move equilibrium to point A (give examples of specific events, not just the direction of the shifts of demand or supply). (5 marks) (b) Initial equilibrium is at point B. Give an example of changes in the market conditions that will move equilibrium to point C (give examples of specific events, not just the direction of the shifts in demand or supply). (5 marks) (c) Initial equilibrium is at point B. A subsidy is introduced in this market that offers a payment to farmers for each kg of apples produced. Where is the new equilibrium? Explain all the steps. (5 marks) (d) "Suppose that initial equilibrium is at B. When a subsidy is introduced, the new equilibrium will not result in the deadweight loss because it will lead to a higher equilibrium quantity and apples are beneficial for health." Do you agree with this statement? Explain your answer. (5 marks) (e) Consider two time periods, 1 and 2. You don't know what was the original equilibrium in Period 1. But you know that as a result of adverse weather conditions impacting the production of apples in Period 2, the market equilibrium in Period 2 is located at point E. Can you deduce what was the original equilibrium in Period 1? How many possibilities are there? Explain all steps. (5 marks)
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Answer rating: 100% (QA)
a To move the equilibrium from point E to point A there could be several changes in market conditions For example A decrease in consumer income If there is a recession or a decrease in consumer purcha... View the full answer
Related Book For
Macroeconomics Principles And Policy
ISBN: 9780324586213
11th Edition
Authors: William J. Baumol, Alan S. Blinder
Posted Date:
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