|Chapter 3: Problems|
2. Use your knowledge of demand to answer each of the following.
a. How would a freeze in Florida affect the demand for oranges?
b. The price of coffee falls. How is the demand for coffee affected?
c. Income falls. How will this affect the demand for beans, an inferior good?
d. How will a fall in the-price of peanut butter affect the demand for jelly?
e. The media reports that red apples are sprayed with a substance that allegedly causes cancer. What would be the likely effect of this news on the demand for apples?
f. How would a major East Coast hurricane affect the demand and supply of lumber in the affected area?
a. A freeze in Florida would cause a decrease in the supply of oranges. This decrease in supply would lead to an increase in the price of oranges, and hence an increase in the price of orange juice. As the price of orange juice rises, there will be a decrease in quantity demanded.
b. As the price of coffee falls, there will be an increase in quantity demanded.
c. As income falls, there will be an increase in the demand for beaus.
d. Since peanut butter and jelly are complements, a fall in the price of peanut butter will lead to an increase in the demand for jelly.
e. If the public is made aware that apples are being sprayed with a cancer-causing agent, their preferences for apples will fall and their will be a decrease in the demand for apples.
f. As rebuilding took place after the hurricane, the demand for lumber would increase. The hurricane could destroy existing stocks of lumber in the affected area. If this occurred, the supply of lumber would temporarily decrease.
3. Briefly describe the difference between a change in quantity supplied and a change in supply. What will cause each of these changes to occur?
A change in quantity supplied means that sellers will be willing to sell more (less) of a good at a new price. For example, ff price rises, the seller will be willing to sell more of the product at the new higher price. A change in supply means that sellers will be willing to sell more (less) of a good at all possible prices. For example, before an increase in supply, sellers were willing to sell 10 pizza slices at a price of $1.00 per slice. Now they are willing to sell 15 pizza slices at this same price. Change in quantity supplied is illustrated by a movement along the supply curve while change in supply is illustrated by a shift of the supply curve.
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