Is the correlation between each pair of variables positive or negative? Is it causal relationship, and if so what is the direction of causality? Why? (a) (b) (c) Both average income and the number of television sets purchased increase. The number of people who want to go to university falls, and the income that can be earned without a university degree rises. Child day-care costs become deductible from taxable incomes, more children are sent to day-care, and the market price of potatoes falls. Notes: (a) There are three pairs of relationships to consider: (i) and (ii), (i) and (iii), (ii) and (iii). (b) Working persons leave their young children at child day-care centres when the parent is at work Practicing with Demand and Supply Changes. For each market, predict the effect of the event(s) on the market equilibrium P* and Q* (and explain why). For each question, answer in this format: D ? S ? PQ (Replace question mark with one of these: 0 = no change ? ? += increase -= decrease? = uncertain) The first 3 are single-effect events, so need limited explanation. The rest are multiple shifts so need more explanation (a) Market for wine produced in Canada produced. Event: There is an early and unexpected frost in Canada (b) Market for Wood-burning stoves. Event: The price of heating oil and natural gas rises (c) Market for Cellular (i.e., mobile) 'phones. Event: A better and less-expensive micro chip is invented (d) The market for fast foods. Event: The public becomes concerned about the health risks of high sodium and cholesterol in fast foods, and at the same time there is an increase in the minimum wage. (Note: Fast-food outlets often hire young people part-time at the minimum wage) (e) The market for bicycles. Event: Consumers are increasingly concerned about global warming. At the same time the price of gasoline falls. 2 (f) The market for beer. Event: The population of drinking age increases, at the same time there is change in preference toward wine, and at the same time the brewery unions negotiate a large increase in wage rates. Note: Breweries make beer. (g) The market for housing. Event: House prices are expected to rise significantly in the near future. . Using D & S With Diagrams For each case, identify what ceteris paribus condition(s) change. Then use diagrams to show what (and why/how) your theory predicts will happen to the equilibrium price and quantity of MARGERINE. a. An advertising campaign convinces consumers that eating butter increases life expectancy and removes facial wrinkles. At the same time as (a), there is an outbreak of a serious cattle disease. b. C. At the same time as (a), the price of bread and rolls falls. d. Consumer incomes increase. e. At the same time as (d), the wholesale price of vegetable oil falls. (Note: Vegetable oil is an input into margarine production.)