Module 1C. Equilibrium and Comparative Statics Practice Problems 10.3 Consider the US market for beef. 1) On a piece of paper, draw a set of axes with price of a pound of beef) on the vertical axis and quantity of beef (in pounds) on the horizontal axis. Draw in a downward-sloping demand curve and an upward-sloping supply curve and indicate equilibrium (you do not need numbers or to plot points, just draw one line that slopes down and one line that slopes up). Using dotted line, indicate the equilibrium quantity on the horizontal axis and denote it as Q*. Using a dotted line, indicate the equilibrium price on the vertical axis. Denote it as P*. This is our initial equilibrium, in February 2020. After the coronavirus arrived in the US, meatpacking plants became hotspots for covid infections which led to temporary closures of meatpacking plants in late spring 2020. We will use the supply and demand framework to predict how the coronavirus would impact the market for beef. 2) Use your graph to show what you think happened in the market (decide which curve you should move and in which direction). Find your new equilibrium price (mark it P') and equilibrium quantity (mark it Q). 3) How do you predict the equilibrium price would change (increase, decrease, no change, unable to determine)? How do you predict the equilibrium quantity would change (increase, decrease, no change, unable to determine)? (Answer in a sentence or two.) 4) Does your answer in (3) seem sensible? (We should always check theoretical predictions against common sense.) 5) Go to St. Louis Fed FRED data. Search for "average price ground beef" and click on Average Price: Ground Beef, 100% Beef (Cost per Pound/453.6 Grams) in U.S. City Average. Right below the graph there is a ribbon where you can drag buttons to select the years in the graph. You might find it easier to see if you just look at Jan 2019 to the present. What do you see happened to the price of ground beef in the early days of the pandemic (April June 2020)? Is it consistent with your prediction? 6) Go back to St. Louis Fed FRED data and search for "industrial production beef and click on Industrial Production: Manufacturing: Non-Durable Goods: Beef (NAICS = 311611- 3pt.). What do you see happened to the quantity of ground beef during the same time period? Is it consistent with your prediction? 7) Briefly, what do you see happening after June 2020 in the FRED data? Did the market eventually go back to pre-pandemic normal