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Buss504 Economics and Society Week 5 Workshop Answers Conversation Questions Complete these sentences out loud. Challenge: Do not repeat something already said! “The demand for ______ will increase / decrease when ______ .” “The supply for ______ will increase / decrease when ______ .”

Short Answer Questions

1. Using the supply and demand model, show what will happen to the equilibrium price and quantity of oranges if the following events take place. a) A study finds that a daily glass of orange juice reduces the risk of heart disease The discovery will shift the demand curve for oranges to the right. As a result, both the equilibrium price and the equilibrium quantity of oranges will increase. b) The price of grapefruit falls drastically Since grapefruit can be assumed to be a substitute for oranges for most consumers, a drastic decrease in the price of grapefruit will make some of the current orange consumers buy grapefruit instead. This will shift the demand curve of oranges to the left. As a result, both the equilibrium price and equilibrium quantity of oranges will decrease. c) The wage paid to orange pickers rises Since labour is an input to orange production, an increase in the wage is an increase in the cost of an input. This will shift the supply curve of oranges to the left. As a result, the equilibrium price of oranges will increase, and the equilibrium quantity will decrease. Note that an increase in wages does not automatically mean an increase in the productivity of the workers, which would have affected supply in the opposite direction. d) Exceptionally good weather provides a much greater than expected harvest A better than expected harvest means that supply will be greater, shown graphically as a shift of the supply curve to the right. As result, the equilibrium price of oranges will decrease, and the equilibrium quantity of oranges will increase.

2. The graph below shows the market for domestic flight tickets in New Zealand. The price of jet fuel now increases. Mark any change(s) to either the demand and/or the supply curve(s) in the graph below. How do the equilibrium price and equilibrium quantity change as a result? Mark the directions of their changes with arrows in the graph below.

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Supply shifts to the LEFT Equilibrium price INCREASES Equilibrium quantity DECREASES

3. Talk it through: What are some factors that would cause the demand and supply curves in the market for dairy to shift?

Demand Curve shift:

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A study finds drinking milk increases calcium (health benefits of drinking milk)

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Consumers disposable income increases

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Price of juice changes

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Price of cereal changes

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Consumers expect a recession in the future

Supply Curve shift: -

Dairy farmers replace workers with robot milkers

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Cost of production increases ie. wages, machinery

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Bad weather season

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Farmers are switching from dairy farming to cow farming

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Farmers expect a recession

Multiple Choice Questions 4) You are told that, for a particular good, its equilibrium price increased, and its equilibrium quantity decreased. What could have caused it? a) An increase in demand b) A decrease in demand c) An increase in supply d) A decrease in supply

5) Suppose you drive a car with good fuel efficiency, and you notice that more and more people are driving petrol-guzzling cars. Their increased demand for gas: a) Does not affect you b) Is likely to cause the price you pay for petrol to decrease c) Is likely to cause the price you pay for petrol to increase d) Does not change the price you pay, but it reduces the quantity of petrol supplied

6) Which of the following will cause an increase in the supply of milk? a) A doctor’s announcement that the calcium in milk strengthens bones and teeth b) A doctor’s announcement that the fat and sugar in milk causes obesity c) The use of robot milking machines, which decreases the cost of milking cows d) A drought, which increases the cost of feeding cows

Law: Discussion of “Law” in ILAC Talking points This week the Workshop is on the LAW part of the Portfolio. Below are the main points to be covered: The applicable statute is the Consumer Guarantees Act (“CGA”) 1993. Section 2 of CGA defines the main terms. Section 6 of CGA creates a guarantee of acceptable quality in goods. Section 7 defines acceptable quality. It must also be noted that according to section 43(1) of CGA the consumer and the supplier cannot contract out of CGA. The relevant case law is Nesbit v Porter....