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Question
1
Market
supply
and
market
demand.
Check
answer.
Market
supply
is
the
horizontal
summation
of
each
producers
quantity
supplied
at
each
price.
Market
demand
is
the
horizontal
summation
of
each
consumers
quantity
demanded
at
each
price.
Next
Question.
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to
enlarge
image.
Click
and
hold
to
reduce.
Question
2
Using
the
diagram
below,
fully
explain
the
impact
of
an
increase
in
demand
for
figgs
due
to
the
discovery
of
health
benefits.
Check
answer.
An
increase
in
the
demand
for
figgs
due
to
health
benefits
means
the
demand
for
figgs
increases
from
D
to
D2.
At
the
old
equilibrium
price
of
$3
there
is
now
a
shortage
of
20
000
boxes
of
figgs.
Due
to
the
shortage
consumers
will
bid
the
price
up.
As
the
price
increases
the
quantity
demanded
will
decrease
from
50
000
boxes
to
40
000
boxes
because
consumers
can’t
afford
to
buy
as
many
and
other
similar
products
are
now
relatively
cheaper.
The
quantity
supplied
will
increase
from
30
000
to
40
000
because
producers
will
cover
their
extra
marginal
costs
of
production
make
more
revenue
and
profits.
The
market
will
go
to
the
new
equilibrium
price
of
$3.50
and
quantity
of
40
000
boxes.
Next
Question.
Previous
Question.
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to
enlarge
image.
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and
hold
to
reduce.
The
price
consumers
pay
before
the
tax
=
$2.80.
The
price
consumers
pay
after
the
tax
=
$3.00
Producers
receive
$2.60
after
the
tax.
The
per
unit
amount
of
the
tax
=
$0.40.
Government
revenue
from
the
tax
=
$8
000.
Consumer
spending
after
the
tax
is
$3
x
20
000
=
$60
000.
Producer
revenue
after
the
tax
is
$2.60
x
20
000
=
$52
000
Question
3
Use
the
diagram
to
full
explain
the
impact
on
the
market
of
an
indirect
tax
on
Pinkbull.
Calculate,
price
before
tax,
price
consumers
pay
after
the
tax,
the
price
producers
receive
after
the
tax.
The
government
revenue
from
the
tax.
Check
answer.
Next
Question.
Previous
Question.
Click
to
enlarge
image.
Click
and
hold
to
reduce.
At
a
price
of
$320
there
is
a
shortage
of
2000
racquets
in
the
market.
Consumers
will
bid
up
the
price
in
order
to
obtain
a
racquet.
As
the
price
increases
the
quantity
demanded
will
decrease
from
4000
to
3000
as
consumers
can’t
afford
to
buy
as
many
racquets
and
it
is
now
relatively
more
expensive
than
substitutes
such
other
sports
equipment
As
the
price
increases
the
quantity
supplied
will
increase
from
2000
to
3000
as
producers
can
cover
their
increased
production
costs
and
since
Profit
is
revenue
minus
production
cost,
producers
profits
will
increase.
The
market
will
go
to
the
equilibrium
price
of
$340
and
equilibrium
quantity
of
3000.
Question
4
Use
the
diagram
to
fully
explain
what
will
happen
Check
answer.
Next
Question.
Previous
Question.
A
good
growing
season
for
oranges
will
cause
the
price
for
oranges
to
decrease.
Oranges
are
a
cost
of
production
for
orange
juice
and
so
the
cost
of
production
for
orange
juice
will
decrease.
This
will
cause
supply
for
orange
juice
to
increase
from
S
to
S2.
At
the
old
market
price
there
is
now
a
shortage
in
the
market.
Producers
will
reduce
to
the
price
to
sell
off
excess
stock
.
As
the
price
decreases
the
quantity
supplied
will
decrease
as
produce
don’t
cover
their
marginal
costs
of
production
and
make
less
revenue
and
profit.
The
quantity
demanded
will
increase
as
consumers
can
afford
to
buy
more
at
the
lower
price
and
it
is
now
relatively
cheaper
than
other
fruit
drinks.
The
market
will
go
to
the
new
equilibrium
price
of
$1.20
and
equilibrium
quantity
of
40
000
litres.
Question
5
Use
the
diagram
to
fully
explain
the
impact
of
an
increase
in
supply
due
to
a
good
growing
season
for
oranges
on
the
market
for
orange
juice.
Check
answer.
Next
Question.
Previous
Question.
Click
to
enlarge
image.
Click
and
hold
to
reduce.
Click
to
enlarge
image.
Click
and
hold
to
reduce.
At
a
price
of
$10
there
is
a
surplus
of
40
000
in
the
market.
Producers
will
reduce
the
price
of
Vitamin
CD
to
sell
off
excess
stock.
As
the
price
decreases
the
quantity
demanded
will
increase
from
10
000
to
20
000
as
consumers
can
now
afford
to
buy
more
Vitamin
CD
and
it
is
now
relatively
less
expensive
than
substitutes
such
as
other
vitamins.
As
the
price
decreases
the
quantity
supplied
will
decrease
from
50
000
to
30
000
as
producers
no
long
cover
their
production
costs
and
since
Profit
is
revenue
minus
production
cost,
producers
profits
will
decrease.
The
market
will
go
to
the
equilibrium
price
of
$8
and
equilibrium
quantity
of
30
000.
Question
6
Use
the
diagram
to
fully
explain
how
the
market
for
Vitamin
CD
will
react
to
a
price
of
$10.
Check
answer.
Next
Question.
Previous
Question.
With
the
subsidy
supply
increases
from
S
to
S+subsidy.
The
price
consumers
pay
before
the
subsidy
was
=
$5.
The
price
consumers
pay
after
the
subsidy
is
=
$4.50.
The
price
producers
receive
after
the
subsidy
is
=
$5.50.
The
per
unit
amount
of
the
subsidy
=
$1.
Government
spending
on
the
subsidy
=
$1
x
40
000
=
$40000.
The
gain
in
consumer
surplus
from
the
subsidy
=
$0.5
x
30
000
+
½
$0.5
x
10
000
=
$17500
Flow
on
effects
could
include:
Increase
in
health
of
consumers
as
they
consume
more
manuka
honey
-
so
decrease
in
health
spending.
Government
needs
to
raise
money
to
pay
for
subsidy
-
may
increase
taxes.
Question
7
Use
the
diagram
to
full
explain
the
impact
on
the
market
of
a
subsidy
on
Manuka
honey.
Calculate,
price
before
the
subsidy,
price
consumers
pay
after
the
subsidy,
the
price
producers
receive
after
the
subsidy.
The
government
spending
on
the
subsidy.
Explain
a
flow
on
effect
on
the
subsidy.
Check
answer.
Previous
Question.
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to
enlarge
image.
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