PRINCIPLES OF MACROECONOMICS(LOOSELEAF)
7th Edition
ISBN: 9781260110920
Author: Frank
Publisher: MCG
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Chapter 3, Problem 6P
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Earlier this year, 2021, the price of chicken meat rose unexpectedly reached to 250/ kilo at peak from the previous price of 170/ kilo. This 68% increase of price per kilo was primarily caused by excess demand for chicken meat. This is the result of the decrease in consumption for pork meat due to the threat of African Swine Flu (ASF). However, even though consumer shifted preferences, the increase in the price of chicken was perceived to be too high for the budget of consumers. Therefore, sellers realized decrease in their daily aggregate sales from 1,000 kilos to 700 kilos.
1. Illustrate the change in the market equilibrium through a graph.
2. What presumably happened to the total revenues of the sellers during the price hike period?
a.) Compute the price elasticity of demand b.) Derive the total revenue before the hike (TR1), and after the hike (TR2).
Consider the demand for pomegranates in two different countries. In Country A, pomegranates are a critical part of the diet and are central to preparation of many recipes. For most of these recipes, there is no feasible substitute for pomegranates. In Country B, households will purchase pomegranates if the price is right, but consumers do not consider them to be particularly special or unique, and few dishes use pomegranates. Suppose pomegranates are native to both countries and due to limited shipping options are not traded. Also suppose that droughts and other weather-related shocks periodically cause unexpected changes in supply conditions.
Use the information above sketch a model of how the market for pomegranates in Country A and in Country B would respond to the supply volatility in each country. Then, use your findings to plot the price of pomegranates across time in Country A and Country B. Explain which country will see more volatile prices and why.
Last year, 1000 gallons of almond milk (a non-dairy product) were sold at a price of $10. Yet, this year, a bad harvest in California has wiped out a
significant part of the almond harvest. At the same time, a larger number of people are looking to shift away from dairy products towards non-
dairy alternatives. Because of these two changes,
the equilibrium price will increase and change in the equilibrium quantity is unambiguous.
the equilibrium price will decrease but change in the equilibrium quantity is ambiguous.
the change in the equilibrium price is ambiguous, but the equilibrium quantity will increase.
O the equilibrium price will increase but change in the equilibrium quantity is ambiguous.
Chapter 3 Solutions
PRINCIPLES OF MACROECONOMICS(LOOSELEAF)
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