Question One 1. Suppose that unusually hot weather causes the demand curve for ice cream to shift to the right. Why will the price of ice cream rise to a new market-clearing level? (5 marks) 2.Use supply and demand knowledge to explain how each of the following events would affect the price of butter and the quantity of butter bought and sold: (a) an increase in the price of margarine (3 marks) (b) an increase in the price of milk (3 marks) (c) a decrease in average income levels. (3 marks) 3. Suppose the government regulates the prices of beef and chicken and sets them below their market-clearing levels. Explain why shortages of these goods will develop and what factors will determine the sizes of the shortages. What will happen to the price of pork? Explain briefly 4. The city council of a small university town decides to regulate rents in order to reduce student living expenses. Suppose the average annual market-clearing rent for a two-bedroom apartment had been $700 per month and that rents were expected to increase to $900 within a year. The city council limits rents to their current $700-per-month level. Explain what will happen to the rental price of an apartment after the imposition of rent controls. (5 marks) ii. Do you think this policy will benefit all students? Why or why not? (5 marks) H iii. In a discussion of tuition rates, a university official argues that the demand for admission is completely price inelastic. As evidence, she notes that while the university has doubled its tuition (in real terms) over the past 15 years, neither the number nor quality of students applying has decreased. Would you accept this argument? Explain briefly. (8 marks)5. Suppose the income elasticity of demand for food is 0.5 and the price elasticity of demand is -1.0. Suppose also that Felicia spends $10,000 a year on food, the price of food is $2, and that her income is $25,000. a. If a sales tax on food caused the price of food to increase to $2.50, what would happen to her consumption of food? (4 marks) b. Suppose that Felicia gets a tax rebate of $2500 to ease the effect of the sales tax. What would her consumption of food be now? (4 marks)