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Question: this question ask you to perform a comparative statics analysis...

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This question ask you to perform a comparative statics analysis in the market for butter when multiple exogenous changes occur at the same time. 

Consider the market for butter, represented by the following diagram.

Assessed2Picture1.png

For each of the following scenarios, determine the effect on the equilibrium price and the equilibrium quantity in the market for butter.

1) There is a decrease in the price of milk (an input for butter production) and, at the same time, there is a decrease in the price of margarine (a substitute for butter). The equilibrium price

i) increases

ii) decreases

iii) could increase or decrease

and the equilibrium quantity

i) increases

ii) decreases

iii) could increase or decrease

 

2) Doctors release a report suggesting that butter is more unhealthy than previously thought and, at the same time, fires destroy a number of dairy farms that produce butter. The equilibrium price

i) increases

ii) decreases

iii) could increase or decrease

and the equilibrium quantity

i) increases

ii) decreases

iii) could increase or decrease

 

3) Suppose that butter is a normal good and buyers receive more income. At the same time, however, the price of bread (a complement for butter) increases. The equilibrium price

i) increases

ii) decreases

iii) could increase or decrease

and the equilibrium quantity

i) increases

ii) decreases

iii) could increase or decrease

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