Question

For each of the following items, identify the direction of the change in demand and/or supply for the good in question (indicated in italics), and determine the direction of the change in equilibrium price and quantity—using fully-labelled diagrams throughout. If a price or quantity outcome is uncertain, make the reason for the uncertainty clear.  
  

9.    Siemens designs and airports install a new, more efficient air traffic control system, thus improving productivity in the shipping industry. (The good here is shipping services.)

10.    Central American governments raise taxes required of growers of bananas.

11.    Unexpectedly cold weather in South America ruins many acres of coffee trees used in the worldwide production of coffee.

12.    Wheat and other grains used in the production of breakfast cereal become more expensive.

Answer 1

9. Due to increase in productivity, there will be an increase in supply and supply curve will shift rightwards.The equilibrium shifts from E1 to E2.  The quantity decreases and price rises..

10. The tax will increase the cost for Banana producers , raising the cost of production. Therefore, supply will decrease and supply curve will shift to the left.

11. Due to destruction of trees, the production of coffee is hampered. The equilibrium shifts from E1 to E2. Thus supply decreases and supply curve shifts to the left. The quantity decreases and price rises..

12. Due to increase the price of ingrigients, the production cost of the cereal rises. The supply curve shifts from S1 to S2. The equilibrium shifts from E1 to E2. Thus supply decreases and supply curve shifts to the left. The quantity decreases and price rises..