How will that affect thedemand for the product at present? Can you show this graphically?

Group Assignment with not more than 4 students Due Date: October 16, 2018
Assigned by: Dr. Abu Reza Mohammad Islam
Answer the following questions. Use cover page, 12 Times New Roman, Space 1.5.
Question 1: A survey indicated that chocolate is Americans’ favorite ice cream flavor. For each of the
following situation, indicate the possible effects on demand, supply, or both as well as equilibrium price
and quantity of chocolate ice cream. In particular, you need to draw both demand and supply diagrams
for each of the following questions: a, b, c, & d to explain the effects on equilibrium price and quantity.
a. A severe drought in the Midwest causes dairy farmers to reduce the number of milk-producing cattle in
their herds by a third. These dairy farmers supply cream that is used to manufacture chocolate ice cream.
b. A new report by the American Medical Association reveals that chocolate does, in fact, have
significant health benefits.
c. The discovery of cheaper synthetic vanilla flavoring lowers the price of vanilla ice cream.
d. New technology for mixing and freezing ice cream lowers manufacturers’ costs of producing chocolate
ice cream.
Question 2: Aaron Hank is a star hitter for the Bay City baseball team. He is close to breaking the major
league record for home runs hit during one season, and it is widely anticipated that in the next game he
will break that record. As a result, tickets for the team’s next game have been a hot commodity. But today
it is announced that, due to a knee injury, he will not in fact play in the team’s next game. Assume that
season ticket-holders are able to resell their tickets if they wish. Use supply and demand diagrams to
explain the following.
a. Show the case in which this announcement results in a lower equilibrium price and a lower
equilibrium quantity than before the announcement. Use demand and supply diagrams to explain.
b. Show the case in which this announcement could result in a lower equilibrium price and a higher
equilibrium quantity than before the announcement. Use demand and supply diagrams to explain.
c. Answer under what situation either case (a) or case (b) would occur?
d. Suppose that a scalper had secretly learned before the announcement that Aaron Hank would not play
in the next game. What actions do you think he (scalper) would take?
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Question 3: By using demand and supply diagrams, illustrate how each of the following events affects
the equilibrium price and quantity of pizza. Explain.
a. The price of mozzarella cheese rises.
b. The health hazards of hamburgers are widely publicized.
c. The price of tomato sauce falls.
d. The incomes of consumers rise and pizza is an inferior good.
e. Consumers expect the price of pizza to fall next week.
Question 4: In an analysis of the market for paint, an economist discovers the facts listed below. State
whether each of these changes will affect supply or demand, and in what direction.
a. There have recently been some important cost-saving inventions in the technology for making
paint.
b. Paint is lasting longer, so that property owners need not repaint as often.
c. Because of severe hailstorms, many people need to repaint now.
d. The hailstorms damaged several factories that make paint, forcing them to close down for several
months.
Question 5: Many changes are affecting the market for oil. Predict how each of the following events will
affect the equilibrium price and quantity in the market for oil. Use the supply and demand framework for
each case below to answer the questions.
a. Cars are becoming more fuel efficient, and therefore get more miles to the gallon.
b. The winter is exceptionally cold.
c. A major discovery of new oil is made off the coast of Norway.
d. The economies of some major oil-using nations, like Japan, slow down.
e. A war in the Middle East disrupts oil-pumping schedules.
f. Landlords install additional insulation in buildings.
g. The price of solar energy falls dramatically.
h. Chemical companies invent a new, popular kind of plastic made from oil.
Question 6: Consider the demand for hamburgers. If the price of a substitute good (for example, hot
dogs) increases and the price of a complement good (for example, hamburger buns) increases, can you tell
for sure what will happen to the demand for hamburgers? Why or why not? Illustrate your answer with a
graph.
a. How do you explain the demographic of an aging population of “Baby Boomers” in the United
States will affect the demand for milk? Justify your answer.
b. We know that a change in the price of a product causes a movement along the demand curve.
Suppose consumers believe that prices will be rising in the future. How will that affect the
demand for the product at present? Can you show this graphically?

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