QUESTION 4 (10 Marks) Consider the effects of each event outlined in the following table on the market for orange juice in Canada. Place a (T), (4) or (-) under the appropriate heading to indicate whether there will be an increase, decrease, or no change in demand (D), supply (S), equilibrium price (P) and quantity traded (Q). Assume orange juice is a normal good. D S P Q a) Medical research indicates that orange juice can cure baldness ) There is a significant increase in the price of oranges. c) An increase in income taxes reduces the after-tax income of Canadians d) An improved method of juicing is introduced in the industry e) The price of apple juice increases dramatically QUESTION 5 (10 Marks) The demand and supply curves for an economy are: P =700 - 10QD (Demand) P = 400 + 5QS (Supply)- a) Rewrite the equations above as a function of price. b) If the price is $10 then the quantity demanded is and the quantity supplied is . At a price of $10 there is a (surplus/shortage) in the amount of c) At market equilibrium, the equilibrium quantity is and the equilibrium price is Page 7 of 7QUESTION 2 (5 Marks) The figure below shows the market for cinnamon toast lattes. Price De -D1 Quantity These lattes were introduced last year but only in recent months is everyone mentioning how amazing they are. In fact, some people who never even drank coffee are now drinking two or three of these lattes a day! At the same time countries that grow cinnamon have experienced a significant drought resulting in a significant decline in their ability to produce cinnamon compared to last year. Assume that S1 and D1 characterize the initial equilibrium - before the lattes were introduced. What combination of curves best corresponds to the market situation after the lattes have been introduced? (indicate the labels of the two curves e.g. D1; $3) D ; S . N Compared to the original equilibrium the price has [increased or decreased? ] and the quantity has_ [increased or decreased?] Page 6 of 7QUESTION 3 (15 Marks) Following are the demand and supply schedules for fradistats in January of 2017: Quantity Demanded Quantity Supplied Price (Jan 2017) Quantity Supplied (Jan 2017) (Jan 2018) $7 20 80 $6 30 75 $5 40 70 $4 50 65 $3 60 60 $2 70 55 a) Plot the demand and supply curves for January 2017 in the grid below: 4 Price $8 $7 $6 $5 $4 $3 $2 $1 so 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 Quantity N b) The equilibrium price is and the equilibrium quantity is 2 c) Suppose that the government sets the price to $5.00 per fradistat. As a result, there would be a (surplus/shortageeither) valued at $ Show this on the diagram. d) Now suppose input costs have increased substantially in January 2018. As a result, it causes the supply to fall by 45 units. Fill in the fourth column in the table above and plot the new supply curve. 3 e) Assuming the price floor remains in place, there is now a (surplus/shortageeither) valued at $ (Note: the price floor remains in place at $5.) Page 5 of 7e) Determine the acceptable range of prices in terms of the trading price for 1 fish in terms of units of seaweed. Determine the acceptable range for 1 unit of seaweed in terms of fish. 1 fish = to J units of seaweed 1 unit of seaweed = [_ to fish f) Using the information in the table given in the question prompt draw each person's PPF in the spaces below. 5 Fish Fish Fish Fish . .. . :... .:....... .:..... ...:.. . S. . . . ... 3 . . . . . . . . ...: ... 2 . ... -. . ... ..... ... ... .... . ....1... ..!... Scaweed Seaweed Seaweed g) Draw the joint PPC below for Maldives. Hint: use your best judgement and remember that the points on the PPC are efficient points - which combination of resources result in the most output. Consider only whole units of output for each of the points on the PPC. 5 Fish A Seaweed Page 4 of 7b) What are the opportunity costs of catching fish for each person in terms of seaweed? What are the opportunity costs of collecting seaweed for each person in terms of fish? Put your answers in the following table. UI Opportunity Cost Opportunity Cost of Fish of Seaweed Anna 3 Chris 5 2 Sandra Joe 3 5 c) Find who has the absolute advantage in catching fish/collecting seaweed? Assume each has just one level of oxygen and then using the table given in the question prompt - complete the table below: Anna Chris Sandra Joe Oxygen Tank Level Total amount of caught fish Total amount of collected seaweed 3 d) Using your opportunity cost table in part b), find who has the comparative advantage in catching fish/collecting seaweed? Opportunity Cost Opportunity Cost of Fish of Seaweed Anna Chris Sandra Joe Page 3 of 7QUESTION 2 (20 marks) Maldives is a deserted island economy with a total of four people: Anna, Chris, Sandra and Joe. The inhabitants are only able to produce two goods in their economy - fish and seaweed. Both goods are obtained from open water diving and require the use of a scuba tank. Luckily, they found four of these tanks, one for each of them, that were left behind by previous visitors to the island. Moreover, they were fortunate to find that each tank comes with a gadget that allows them to fill the tanks with oxygen by manually pumping air into the tank. This takes quite a bit of time, and they find it best to fill these at night before they go to sleep. The gadgets are also not equally efficient at filling the tanks and they are not interchangeable - each can only be used with the specific tank it was found with. As such, in the morning the maximum level of oxygen in each person's tank differs. Thus, each person possesses a different amount of oxygen in their tanks. The following table shows the level of oxygen in each person's tank in the morning and how much is needed for each to catch each unit of food: Anna Chris Sandra Joe Oxygen Tank Level 6 10 8 15 Catching Fish (Level/Fish) 2 2 5 Collecting Seaweed (Level/Seaweed) W 5 2 3 a) If all four decide to catch only fish, how many can they all catch? If all four decide to collect only seaweed, how many can they all catch? Put your answers in the following table. N Fish Seaweed Anna Chris Sandra Joe Page 2 of 7