Answer all parts to this question.
Part i) Determine the impact of each of the following events on the market for the products below shown in italics. For each event show the impact on the Demand or the Supply, Equilibrium Price and the Equilibrium Quantity (i.e. increase or decrease, or no change in Demand or Supply, increase or decrease in equilibrium price and equilibrium quantity or indeterminate). Also, explain which determinant of demand or supply is causing the change. (6.5 marks)
Part ii) The following table sets the demand and supply schedules for gum (3.5 marks)
Price (cents per gum) Quantity Demanded (packs/week) Quantity Supplied (packs/week)
20 180 60
40 140 80
60 90 90
80 60 120
a) If the price of gum is 40cents a pack, describe the situation in the gum market. Explain how the price adjusts.
b) If the price of gum 80cents a pack, describe the situation in the gum market. Explain how the price adjusts.
c) What is the market equilibrium ?
d) Which one of these prices is an example of a price floor? If this price floor is imposed by the government, what would be the consequence for this market?
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