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 and quantity in the specified competitive market. Show on your graph and explain whether there is a shift in the demand curve, the supply curve both curves, or neither. What happens to price? What happens to equilibrium?

a. An unexpected temporary heat wave hits the East Coast. Show the effect in the ice cream market in New England. (10 points)

b. The government introduces a tax on ice cream which is paid by producers. What is the effect in the ice cream market? (10 points)

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. (10 points)

d. Show the effect of the situation described in (c) on the market for Chinese textiles. (10 points)

e. Suppose the government imposes a price ceiling on bottled water. Show the effect in the bottled water market. (10 points)

f. Suppose the government imposed a price floor on bottled water. Show the effect in the bottled water market. (10 points)