How to approach Dynamic graph related problems?

Can you solve these problems related to macroeconomics?

• 1. State whether each of the following events will result in a movement along the demand curve for McDonald’s Big Mac hamburgers or whether it will cause the curve to shift. If the demand curve shifts, indicate whether it will shift to the left or to the right and draw a graph to illustrate the shift. a. The price of Burger King’s Whopper hamburger declines. b. McDonald’s distributes coupons for $ 1.00 off the purchase of a Big Mac. c. Because of a shortage of potatoes, the price of French fries increases. d. KFC raises the price of a bucket of fried chicken. e. The U. S. economy enters a period of rapid growth in incomes. 2. Briefly explain whether each of the following state-ments describes a change in supply or a change in the quantity supplied. a. To take advantage of high prices for snow shovels during a very snowy winter, Alexander Shovels, Inc., decides to increase output. b. The success of Red Bull leads more firms to begin producing energy drinks. c. In the six months following Hurricane Katrina in 2005, production of oil in the Gulf of Mexico declined by 25 percent. 3. In The Wealth of Nations, Adam Smith discussed what has come to be known as the “ diamond and water paradox”: Nothing is more useful than water: but it will purchase scarce anything; scarce any-thing can be had in exchange for it. A dia-mond, on the contrary, has scarce any value in use; but a very great quantity of other goods may frequently be had in exchange for it. Graph the market for diamonds and the market for water. Show how it is possible for the price of water to be much lower than the price of diamonds, even though the demand for water is much greater than the demand for diamonds. 4. As oil prices rose during 2006, the demand for alter-native fuels increased. Ethanol, one alternative fuel, is made from corn. According to an article in the Wall Street Journal, the price of tortillas, which are made from corn, also rose during 2006: “ The price spike [ in tortillas] is part of a ripple effect from the ethanol boom.” a. Draw a demand and supply graph for the corn market and use it to show the effect on this market of an increase in the demand for ethanol. Be sure to indicate the equilibrium price and quantity before and after the increase in the demand for ethanol. b. Draw a demand and supply graph for the tortilla market and use it to show the effect on this market of an increase in the price of corn. Once again, be sure to indicate the equilibrium price and quantity before and after the increase in the demand for ethanol. c. During 2009, the demand for gasoline had fallen, lowering its price. The demand for ethanol had declined as well. Ethanol producers, though, were asking the Environmental Protection Agency ( EPA) to raise the allowable amount of ethanol in gasoline blends from 10 percent to 15 percent. If the EPA were to agree to this proposal, what would be the likely effect on tortilla prices? 5. David Surdam, an economist at Loyola University of Chicago, made the following observation about the world cotton market at the beginning of the Civil War: As the supply of American- grown raw cotton decreased and the price of raw cotton increased, there would be a movement along the supply curve of non- American raw cotton suppliers, and the quantity supplied by these producers would increase. Illustrate this observation with one demand and sup-ply graph for the market for American- grown cotton and another demand and supply graph for the mar-ket for non- American cotton. Make sure your graphs clearly show ( 1) the initial equilibrium before the decrease in the supply of American- grown cotton and ( 2) the final equilibrium. Also clearly show any shifts in the demand and supply curves for each market.

• Answer:

  no