Homework 2 **Due on Tuesday, 09/25/2018** Part I: Multiple Choice Questions 1. W

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Homework 2 **Due on Tuesday, 09/25/2018** Part I: Multiple Choice Questions 1. Which of the following could explain a movement from point F to point G in Figure 1? Assume that the good represented is an inferior good. Price per Unit a. all of the following are correct b. an increase in buyers' incomes c. a decrease in the expected future 6 $2.00 *-_- price of the good d. an increase in the price of the good e. an increase in the price of a complement 1.00- Dr 10 20 Quan Figure 1 Part II: Short-Answer Questions Please answer the following questions in the space provided. Show your work. 2. A survey indicated that chocolate ice cream is the most popular flavor of ice cream in America. Assume that Do and So are the original demand and supply curves of chocolate ice cream. For each of the following, please graphically illustrate the impact each of the following would have on demand, supply, or both as well as equilibrium price and quantity of chocolate ice cream. 2a. A severe drought in the Midwest causes dairy farmers to reduce the number of milk producing cattle in their herds by a third. These dairy farmers supply cream that is used to manufacture chocolate ice cream. So Do

Explanation / Answer

Part I

Q.1. d) an increase in the price of the good

Good for which demand decreases as the level of income or real GDP in the economy increases is an inferior good. This happens when a good has costlier substitutes that see an increase in demand while there is an improvement in the society's economy.

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