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In class problems on Shifting the Supply and Demand Dr. Claudia Strow Explain what happens to the equilibrium price and quantity of apples (, , or stays the same) when the following happens. Also note which curve is affected (S or D). curve price quantity 1. Rot destroys many of the apple crops 2. Much of the orange crop is destroyed due to a freeze (assume oranges are a substitute for apples) 3. New planting technology is created 4. Incomes fall & apples normal goods 5. A report is released that a pesticide used to grow apples is cancerous 6. Assume caramel and apples are complements and the price of sugar falls 7. More schools start celebrating with fall festivals with bobbing for apples and at the same time wages of apple pickers rise. 8. The profitability of corn (an alternate good producers could produce) increases and at the same time consumers expect the price of apples to fall in the future 1 Practice Exercise on Shifting Supply and Demand Economics Dr. Claudia Strow I. In the following situations evaluate what happens to supply or demand for new homes in Bowling Green and how this affects the equilibrium price and quantity exchanged. First analyze which curve(s) are affected and in which direction it shifts. Then state what happens to the price and quantity of new homes. Hint: you may find it helpful to graph the shifts in order to determine how price and quantity are affected. Curve price quantity (S or D) (,, no change) (,, no change) 1. Shipping costs for new home suppliers fall due to lower gas prices 2. The population decreases 3. Apartment rents rise 4. Incomes fall due to a slowing economy and new homes are a normal good 5. GM builds a new plant in Bowling Green so lots of new families move into town. 6. There is a shortage of brick 7. The Parade of Homes is held increasing people’s taste for new homes and at the same time the wages of construction workers rise 8. The price of lumber in Bowling Green falls and at the same time the supply of used homes on the market increases 2 II. In the following situations evaluate what happens to supply or demand for domestically produced new cars and how this affects the equilibrium price and quantity exchanged. First analyze which curve(s) are affected and in which direction it shifts. Then state what happens to the price and quantity of new cars. Hint: you may find it helpful to graph the shifts in order to determine how price and quantity are affected. curve price quantity 1. Trade restrictions raise the price of foreign produced cars. 2. Workers at domestic car manufacturer plants are able to negotiate higher wages. 3. Banks are offering easier access to loans at lower interest rates. 4. Car pooling becomes more popular as an advertising campaign promoting environmental responsibility is released. 5. Income levels fall as many lose their jobs in the current recession. Assume new cars are a normal good. 6. Consumers expect prices of new cars to rise in the future and at the same time a shortage of steel causes production costs to rise. 7. The price of car insurance rises and at the same time new car manufacturers expect the prices of new cars to rise in the future. 8. Driving classic (older model) cars becomes more popular. 3