The market for milk is in equilibrium. Recent health reports indicate that calcium is absorbed better in natural forms such as milk, and at the same time, the cost of milking equipment rises. Carefully analyze the probable effects on the market
What will be an ideal response?
The heath reports are likely to cause an increase in the demand for milk. Alone, this would increase both the equilibrium price and quantity of milk. The increase in equipment costs will cause a decrease in the supply of milk, and this alone would cause an increase in equilibrium price and a decrease in equilibrium quantity. Taken together, both effects will lead to an increase in price, and thus we can be certain that the equilibrium price will rise. The effect on quantity is unclear as the supply and demand shifts move quantity in different directions.
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This year Gus purchased a used 1972 vehicle from Wee-Rob-U Auto Sales. The dealer paid $500 for it yesterday, and sold it to Gus for $3500. In principle, what happens to GDP?
A) Nothing, because the vehicle was already accounted for in 1972. B) Nothing, because Gus was ripped off. C) It increases by $3000. D) It increases by $3,500. E) It increases by $6,500.
German luxury car exports were hurt in 2009 as a result of the recession. How would this decrease in exports have affected Germany's aggregate demand curve?
A) The aggregate demand curve would have shifted to the right. B) The aggregate demand curve would not have shifted, but there would have been a movement up the aggregate demand curve. C) The aggregate demand curve would have shifted to the left. D) The aggregate demand curve would not have shifted, but there would have been a movement down the aggregate demand curve.