1. For each of the following scenarios, use a supply and demand diagram to illustrate

the effect of the given shock on the equilibrium price and quantity in the specified competitive

market. Explain whether there is a shift in the demand curve, the supply curve, or neither.

(a) An unexpected temporary heat wave hits the East Coast. Show the effect in the

ice cream market in New England.

(b) The government introduces a tax on ice cream which is paid by producers. What

is the effect in the ice cream market?

(c) China and Mexico are major producers of textiles. Workers in Mexico decide to

go on strike. Show the effect on the market for Mexican textiles.

(d) Show the effect of the situation described in (c) on the market for Chinese textiles.

(e) Suppose the government imposes a price cap on bottled water. Show the effect in

the bottled water market.