Question 1 a. Do you agree with the following statements? Explain your answers. i. The price of butter rises, causing the demand for another good to fall. This implies that the goods are substitutes. ii. During the pandemic, incomes fell for many Bahamians this change would likely lead to a decrease in the prices of both normal and inferior goods. , iii. Ifthe demand and supply of lobster increases at the same time price will rise. iv. The price of milk falls. This causes an increase in the price of good cheese. Therefore, milk and cheese are complements. | b. Explain and illustrate each of the following statements using supply-and- demand diagrams. Show the impact on equilibrium price and quantity. i. Laptops - There is increased access to wireless technology and lighter weight products are available. Microchips a component of laptops are cheaper as new technology has come online. ii. Lychee - Production in Canada totalled 1.5 million barrels in 2018, a 40 percent increase from 2017. Demand increased by even more than supply, over the same period. iii. Gasoline - The price of sedans rises and electric cars have become more popular iv. Wool coats: New knitting machines are invented and insect infestation destroys most of the cotton crop in Canada Question 2 a. In the summer, which is the peak season for tourists, the price of hotels is typically higher than it is in the winter. In the case of onions however, the reverse is true: The price of onions is lower in the peak season than it is 1n the summer season. How do we explain this seeming contradiction? | b. Identify and explain the errors found in the following statements: i. Demand decreases, causing prices to fall. Lower prices cause demand to increase. Therefore, prices increase to their original levels. ii. ~ The supply of cereal in China increases, causing cereal prices to fall. Lower prices alwavs mean that Chinese households spend more on cereal. . The market for chicken is shown below. Equilibrium price and quantity are $15 and 8 chicken, respectively. Assume that the price of grains decreases (grains is an important input for chicken harvesting). Explain the ad]ustment process in the chicken market after the shock to the new equilibrium. demand quantity Question 3 a. The municipal corporations in most parishes in Jamaica have initiated a program to charge residents for garbage disposal based on the number of cans filled per week. The parish of Kingston decided to increase its per can price from $500 to $750 per week. In the first week, it was found that the number of cans that were brought to the curb fell from 500 to 450 (although the workers complained that the cans were heavier). The chief economist ran the numbers, informed the mayor that the demand for disposal was inelastic, and recommended that the price be raised to maximize town revenue from the program. Four months later, at a price of $1000 per can, the number of cans has fallen to 125 and town revenues are down. What might have happened? " b. Using the midpoint formula and the graph below, calculate the following: C. i. The price elasticity of demand when the price changes from 9 to 15; and ii. ~ The price elasticity of supply when the price changes from $4 to $9 Price ($) Supply Demand | | | | | _' | | | | & e 7 | | | | | 5 Using the table below calculate the cross-price elasticity of flour with respect to rice 10 16 Quantity