A. cassava are substitutes in production. Using appropriate demand and supply cu

Question

A. cassava are substitutes in production. Using appropriate demand and supply curves Suppose that tea is a normal good, tea and lemons are complements in consumption, and tea and Suppose today consumer income increases and the price of lemons increases. Carefully illustrate how these two events collectively impact the market equilibrium price and quantity of tea today. That is, do price and quantity today increase, decrease, or based on the information given, you are unable to determine? Suppose today consumer income decreases and the price of cassava increases. Carefully illustrate how these two events collectively impact the market equilibrium price and quantity of tea today. That is, do price and quantity today increase, decrease, or based on the information given, you are unable to determine? Suppose consumers and producers of tea expect the price of tea in the future to be much higher. Carefully illustrate how these two events collectively impact the market equilibrium price and quantity of tea today. That is, do price and quantity today increase, decrease, or based on the information given, you are unable to determine? The U.S. government historically has administered two programs that affect the market for cigarettes. Media campaigns and labeling requirements have been aimed at making the public aware of the health dangers of cigarettes. Also, prior to 2005, the Department of Agriculture maintained a program of price supports for tobacco, which set the price of tobacco above the market equilibrium price by restricting the amount of land that could be devoted to tobacco production. Are these two programs at odds with each other with respect to the goal of reducing cigarette consumption? Explain carefully. As part of your answer, illustrate graphically the effects of both policies on the market for cigarettes

Explanation / Answer

A.

i.Tea and lemons are complements.If price of lemons rises then demand for tea would fall (consumption of tea would become expensive).

The demand curve for tea would shift to the left reducing both price and quantity.

When demand for tea falls producers will shift to the production of cassava because the price of cassava is now relatively higher to the price of tea.

The supply of tea would fall increasing price and reducing quantity.

Ultimately only the quantity would fall and the price would remain the same.

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