Question
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
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.
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