Is there a surplus or a shortage? (5) Shown below is a graph of the supply and d
ID: 1149205 • Letter: I
Question
Is there a surplus or a shortage? (5) Shown below is a graph of the supply and demand for raisins. The following series of events occurs. Assume the market began at equilibrium and will find a new equilibrium after the events have occurred. Which of the following movements will occur to reach the new equilibrium? (events may lead to more than one of these occurring) (ey a decrease in supply (P an increase in supply (g) a decrease in quantity supplied (h) an increase in quantity supplied (i) no change a decrease in demand (b) an increase in demand (a decrease in quantity demanded (d) an increase in quantity demanded Cc (A) To discourage the production of raisins, the government taxes the raisin manufacturers Price (S) (B) Good weather has led to more than the normal grape yields (used to mak raisins) in California (C) The price ofcraisins (a substitute) decreases. (D) Raisins become a more $1 popular snack among teenagers and young adults. 11 (E) The government declares a price floor of $2. a (F)Labor costs at all raisin manufacturers double due to a change in wages. - L (G) Income increases (assume 5000 T Quantity that raisins are an inferior good).Explanation / Answer
(5)
(A) (e)
A tax on producers will shift supply curve to left, decreasing supply.
(B) (f)
A good weather increases crop yield which shifts supply curve rightward and increases supply.
(C) (d) and (g)
As price of a good decreases, its quantity demanded increases (as per law of demand) and its quantity supplied decreases (as per law of supply).
(D) (b)
Positive consumer preference increases the demand for raisins, shifting its demand curve rightward.
(E) (c) and (h)
The price floor of $2 is above the equilibrium price of $1. At higher price, quantity demanded decreases and quantity supplied increases.
(F) (e)
Higher labor cost raises production costs and firms lower supply. Supply curve shifts left and supply decreases.
(G) (a)
Since raisin is inferior good, higher consumer income will decrease its demand, shfting demand curve leftward.
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