State in words what happens to the demand and/or supply curve, price, and quantity of a good if:
(a) Consumers expect that the price will go up in the near future.
(b) The price of its substitute decreases.
(c) The government reduces the subsidy to the suppliers of the good.
(d) The government imposes a price ceiling (assume this price is ABOVE the initial equilibrium price).
(e) The incomes of consumers decrease.
The following is a set of hypothetical production possibilities for a nation:
Combination | Chickens (thousands) | Turkeys (thousands) |
A | 0 | 20 |
B | 6 | 18 |
C | 12 | 14 |
D | 18 | 8 |
E | 24 | 0 |
(a) What is the opportunity cost of the first 6 thousand chickens produced?
(b) Between which points is the opportunity cost per thousand chickens the highest?
(c) Does this production possibilities frontier reflect the law of increasing opportunity costs? Explain.
(d) Suppose the country decides to produce 12 thousand chickens and 14 thousand turkeys. Is this production level efficient? Explain.
(e) Suppose the country is producing 21 thousand chickens and 2 thousand turkeys. Is this level of production efficient? Explain.
Consider a production possibilities frontier (PPF) for a farmer growing oranges and apples.
(a) Explain how the PPF and the production of oranges and apples will be affected by drought.
[2 marks]
(b) Now suppose the farmer obtains a new pesticide that is highly effective at protecting oranges but has a neutral effect on apples. Explain what will happen to the PPF.
[2 marks]
(c) Following part (b), explainhowandwhythis will affect the market for oranges and apples. In your answer, make clear what happens to the prices and quantities with reference to supply and demand curves.