Question

Now suppose that the “Avocados from Mexico” trade group airs a wildly successful commercial for avocado toast during the Super Bowl, and it goes viral. Explain what happens to the following quantities after this ad campaign. Assume the US border tax is in place before and after the commercial, and that the US corporate tax is lowered to 21% before and after the commercial. When you give each answer, briefly explain why. Some of these are ambiguous, so in order to 10 get full credit you must provide a prediction that is reasonable and a justification that is consistent with your prediction.

i. The demand curve for avocados in the US

ii. The short run supply curve for avocados in the US:

iii. The price of avocados in the US:

iv. Government tax revenue from taxing avocado imports

v. Onion demand in the US:

vi. Onion prices in the US:

vii. Onion short run supply curve in the US:

viii. USG Tax revenue from onion farmers:

Answer 1

a) the viral add will increase the demand for avocados in the US. and shift the demand curve to the right.

b) The short run supply curve will remain the same.

c) THe price of the avocados will increase as the supply is limited and the demand has increased.

d) As the demand increase the government revenue will also increase.

e)As the onion and the avocados are complement the demand for the onions will also increase.

f) As the onions and the avocados are complements the price of onions will also increase.

g) The short eun supply of onions will remain the same

h) The tax form the onion farmers will increase as the demand and price has increased.