1. Because bagels and cream cheese are often eaten together, they are complements. A) We observe that both the equilibrium price of cream cheese and the equilibrium quantity of bagels have risen. What could be responsible for this pattern - a fall in the price of flour or a fall in the price of milk? Illustrate and explain your answer using the supply and demand diagrams. (You are required to draw 2 graphs, one for bagels market and the other for cheese market) You must use the graphs and explanation in the proper order (One market will show the direct effect of an increase or decrease in an input price and the second market will show the effect due to being complement to the first good) B) Suppose instead that the equilibrium price of cream cheese has risen but the equilibrium quantity of bagels has fallen. What could be responsible for this pattern - a rise in the price of flour or a rise in the price of milk? Illustrate and explain your answer using the supply and demand diagrams. (2 graphs, one for each market). Again use the appropriate order for markets or else marks will be deducted. 2. Pharmaceutical drugs have an inelastic demand and smartphones have an elastic demand. Suppose that technological advance happened in both markets. A) Draw the demand and supply diagrams for each market separately and show using the three steps what happens to price and quantity due to shift in the supply curve. B) Which product experiences a greater change in price? Why? Which product experiences a greater change in quantity? Why? Explain using the concept of elasticity. C) What happens to the total consumer spending on both products? Use the concept of total revenue with relation to elasticity and explain. 3. Consider public policy aimed at smoking. A) Studies indicate that the price elasticity of demand for cigarettes is about 0.4. If a pack of cigarettes currently costs $15 and the government wants to reduce smoking by 30 percent, by how much should it increase the price? [Hint: Use the elasticity formula to find the answer] B) If the government permanently increases the price of cigarettes, will the policy have a greater effect on smoking one year from now or five years from now? Studies also find that teenagers have higher price elasticity than do adults. Why might this be true? Explain all the relevant details. C) Do you think COVID-19 has impacted the smoking pattern for people? Are people smoking more due to COVID-19? What are the reasons for your answer? 4. Suppose Qd = 500 - 4P and Qs = 6P A) Find Equilibrium P and Q. B) Find the price that buyers will pay and the price that sellers will receive and the quantity that will be exchanged in the market. Show all the steps with explanation to receive full marks. Hint: Modify the equations as follows: Qd = 500 - 4PB Qs = 6Ps If the tax is paid by buyer PB = Ps +T C) What is the burden of consumers? What is the burden of producers? What is the amount of total tax paid