Assignment 2 1. Explain each of the following statements using supply and demand. a. When a cold snap hits Florida, the price of orange juice rises in super markets throughout the country. b. When the weather turns warm in New England every summer, the price of hotel rooms in Caribbean resorts plummets. 2. For each of the following market situations, explain whether the supply curve or the demand curve shifts, in which direction does it shift, and the equilibrium price and quantity as a result of the change. a. The market for Ginkgo Biloba after studies shows its efficacy at memory retention with no adverse side effects. b. The market is for automobiles after the price of steel, which is used to produce automobiles, increases by 50%. 3. Consider the following events: Scientists reveal that consumption of oranges decreases the risk of diabetes, and at the same time, farmers use a new fertilizer that makes orange trees more productive. Illustrate and explain what effect these changes have on the equilibrium price and quantity of oranges. 4. Explain and define income elasticity of demand. What does it tell you about a good?
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