Question 6 Refer to Scenario 3.3 below to answer the question(s) that follow. SCENARIO 3.3: -Mustard and mayonnaise are substitutes. -Mustard and relish are complements. -Mustard is a normal good. -During the summer, about 50% of all mustard was recalled by manufacturers and removed from store shelves. a) Draw a graph of the market for mustard using the following demand and supply equations, Qd = 24-P and Qs = 6+2P respectively. b) Refer to Scenario 3.3. As a result of the recall, what will happen to the equilibrium price and quantity in the market for mustard? Show the change on your graph in a). c) Refer to Scenario 3.3. If at the same time of the mustard recall, consumer income also decreased. Then, ceteris paribus, in the market for mustard show the changes to equilibrium price and quantity. d) What is the price elasticity of demand if the price changes from $10 to $12. Use the demand curve from part a) and the midpoint method to answer this question. Be specific and show all calculations. e) If price of relish decreases and the price of mustard seeds increases, what will happen in the market for mustard. Show the changes to equilibrium price and quantity. f) If you knew that the cross-price elasticity of demand for mustard was less than zero in absolute value, how might you change your prediction of the quantity impact in e)? Discuss and use graphs.
Question 6 Refer to Scenario 3.3 below to answer the question(s) that follow. SCENARIO 3.3: -Mustard and mayonnaise are substitutes. -Mustard and relish are complements. -Mustard is a normal good. -During the summer, about 50% of all mustard was recalled by manufacturers and removed from store shelves. a) Draw a graph of the market for mustard using the following demand and supply equations, Qd = 24-P and Qs = 6+2P respectively. b) Refer to Scenario 3.3. As a result of the recall, what will happen to the equilibrium price and quantity in the market for mustard? Show the change on your graph in a). c) Refer to Scenario 3.3. If at the same time of the mustard recall, consumer income also decreased. Then, ceteris paribus, in the market for mustard show the changes to equilibrium price and quantity. d) What is the price elasticity of demand if the price changes from $10 to $12. Use the demand curve from part a) and the midpoint method to answer this question. Be specific and show all calculations. e) If price of relish decreases and the price of mustard seeds increases, what will happen in the market for mustard. Show the changes to equilibrium price and quantity. f) If you knew that the cross-price elasticity of demand for mustard was less than zero in absolute value, how might you change your prediction of the quantity impact in e)? Discuss and use graphs.
Chapter1: Making Economics Decisions
Section: Chapter Questions
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Transcribed Image Text:Question 6
Refer to Scenario 3.3 below to answer the question(s) that follow.
SCENARIO 3.3:
-Mustard and mayonnaise are substitutes.
-Mustard and relish are complements.
-Mustard is a normal good.
-During the summer, about 50% of all mustard was recalled by manufacturers and removed from
store shelves.
a) Draw a graph of the market for mustard using the following demand and supply
equations, Qd = 24 - P and Qs = 6 + 2P respectively.
b) Refer to Scenario 3.3. As a result of the recall, what will happen to the equilibrium price
and quantity in the market for mustard? Show the change on your graph in a).
c)
Refer to Scenario 3.3. If at the same time of the mustard recall, consumer income also
decreased. Then, ceteris paribus, in the market for mustard show the changes to
equilibrium price and quantity.
d) What is the price elasticity of demand if the price changes from $10 to $12. Use the
demand curve from part a) and the midpoint method to answer this question. Be specific
and show all calculations.
e)
If price of relish decreases and the price of mustard seeds increases, what will happen in
the market for mustard. Show the changes to equilibrium price and quantity.
f)
If you knew that the cross-price elasticity of demand for mustard was less than zero in
absolute value, how might you change your prediction of the quantity impact in e)?
Discuss and use graphs.
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