Question

1. Explain each of the following statements using supply-and-demand diagrams.

a. “When a cold snap hits Florida, the price of orange juice rises in supermarkets throughout the country.”

b. “When the weather turns warm in New England every summer, the price of hotel rooms in Caribbean resorts plummets.”

c. “When a war breaks out in the Middle East, the price of gasoline rises and the price of a used Cadillac falls.”

Hints: • Draw both supply and demand curve of each section in one diagram

• Show how price changes

• 1c – affects 2 markets (Gasoline & Cadillacs – 2 graphs)

6. Using supply-and-demand diagrams, show the effect of the following events on the market for sweatshirts.

a. A hurricane in South Carolina damages the cotton crop.

b. The price of leather jackets falls.

c. All colleges require morning exercise in appropriate attire.

d. New knitting machines are invented.

Hints: • Draw both supply and demand curve of each section in one diagram

• Show how price and quantity changes

Answer 1

1. a) When a cold snap hits Florida, crops get destroyed and the supply of oranges decrease. As oranges are used for orange juice, the supply of orange juice shifts to left as shown below. Thus, price rises and quantity decreases.

Orange Juice Market Q2 Q1

b) When the weather turns warm, the demand for hotel rooms in Caribbean decrease. Thus, demand curve shifts to left and the price falls.

Hotel market D1 Q2 Q1

C) If war breaks out in middle-east, supply of oil decreases. Supply of gasoline shifts to the left and price increase. As gasoline becomes more expensive, people prefer public transportation. Demand for Cadillac falls and the price decrease.

Gasoline Market Q2 Q1

Cadillac market D1 Q2 Q1

6) a) If cotton crops are damages, cotton becomes more expensive. Cotton is an important input for sweatshirts. The cost of producing sweatshirts rises. The supply decreases and shifts to the left.

Sweatshirt Market Q2 Q1

b) If the price of leather jacket falls, people will buy more leather jackets instead of sweatshirts. The demand for sweatshirts fall and the demand curve shifts to the left.

Sweatshirt market D1 Q2 Q1

c) If all colleges require morning exercise in appropriate attire, more people will sweatshirts. The demand for sweatshirts increase.

Sweatshirt market D2 D1 Q1 Q2

d) If new knitting machines are invented, the productivity will increase. More sweatshirts will be produced. Supply curve shifts to the right.

Sweatshirt Market $1 , S2 P2 Q1 Q2

Answer 2

a

1. New knitting machines are invented.

Answer 3

a

1. New knitting machines are invented.