Make a graph to illustrate the market for tomatoes before the unusually cold January

1. There are six main factors that change demand.

Based on the example of your interest explain each one of them and draw the 6 curves that are supporting your conclusion.

• The price of substitute rises (0.25)
• Expected future prices drop (0.25)
• Income drops (inferior good example) (0.25)
• Income drops (normal good example) (0.25)
• Expected future income and credit rises (0.25)
• Population rises (0.25)
• Preferences towards the product are rising (0.25)

1. B) Dairies make low-fat milk from full-cream milk, and in the process, they produce cream, which is made into ice cream.

Explain the effect of each event on the supply of low-fat milk and draw one curve for each event that supports your conclusion.

The following events occur one at a time:

1.1.            The wage rate of dairy workers rises. (0.25)

1.2. The price of cream rises. (0.25)

1.3. The price of low-fat milk rises. (0.25)

1.4. With a drought forecasted, dairies raise their expected price of low-fat milk next year. (0.25)

1.5. New technology lowers the cost of producing ice cream. (0.25)

1. C) Frigid Florida Winter is Bad News for Tomato Lovers

An unusually cold January in Florida destroyed entire fields of tomatoes. Florida’s growers are shipping only a quarter of their usual 5 million pounds a week. The price has risen from $6.50 for a 25-pound box a year ago to $30 now.

• Make a graph to illustrate the market for tomatoes before the unusually cold January and in the same graph show how the events in the news clip influence the market for tomatoes. (0.5)

• In April 2014, the money price of a carton of milk was $2.01 and the money price of gallon of gasoline was $3.63. Calculate the relative price of a gallon of gasoline in terms of milk. (0.5)

1. D) The following events occur one at a time:

Explain the effect of each of these events on the market for gasoline and draw the curve for each event that supports your conclusion.

1.1.      The price of crude oil rises. (0.25)

1.2.      The price of a car rises. (0.25)

1.3.      All speed limits on highways are abolished. (0.25)

1.4.      Robots cut car production costs. (0.25)