1. According to the Australian Wool Innovation, severe drought conditions in Australia contributed to the lowest level of wool production in 50 years. This record low production has driven up prices sharply in Australian wool markets. Meanwhile, the price of raw cotton increased significantly for the first time in many years. From the scenario described, answer the questions below. (30 points)

a. Illustrate this event with a single supply-demand graph for the Australian wool market and a corresponding single supply-demand for the raw cotton market. Indicate on your graph (i) the initial equilibrium before the decrease in the supply of Australian wool and (ii) the final equilibrium. Using arrows on the graphs, indicate any shifts in the demand and supply curves for each market. Label your graphs fully. (20pts)

b. In a few sentences write an explanation of the supply and demand changes in the two products. (10pts)

2. The owner of Christie's Bookstore is looking into the sales of its Health & Fitness magazine section. She finds that her equilibrium is at 1,000 magazines per month sold at an average price of $4.25 per magazine. When the price of these Health & Fitness magazines rose to $4.95 each, the quantity sold fell to 900 magazines per month, while the quantity supplied to her increased to 1,250 a month. From the scenario described, answer the questions below. (40 points)

a. Draw an appropriate graph for Christie's original Health & Fitness magazine market position.

b. Calculate the price elasticity of supply for the Health & Fitness magazines between prices $4.25 and $4.95. Is it elastic or inelastic? How do you know based on your answer?

c. Give examples of three real and specific changes could affect the elasticity of demand for Health & Fitness magazines.

d. Christie also notices that when the average price of the Health & Fitness magazines rose from $4.25 to $4.95, the quantity of nutritious snack bars sold at the checkout register fell by 12%. Calculate the cross elasticity of demand between the two goods and determine if they are substitutes or complements based on your answer.