1) Illustrate the following incidents with supply and demand graphs indicating the change in equilibrium price and quantity. The market for
a. oranges. Apples, a substitute good, become more expensive.
b. cars. Steel, an input good for cars, becomes cheaper as tariffs are repealed.
c. food. A small baby boom increases the population.
d. sneakers. Tire demand shifts to the right. Both tires and sneakers use rubber as an input.
e. gasoline: Drivers expect prices to become higher in the near future.
2) It has been suggested that taxes should levied on junk food to discourage people eating it. Illustrate with a supply and demand graph what the effect of a tax would be, indicating the reduction in quantity, the revenue generated, the changes in surplus, and the deadweight loss. Make sure your labels are specific. Is it possible that this tax could ever have zero deadweight loss? Explain why or why not.
3) Illustrate with a graph how the PPF presents a strong rationale for the plausibility of the law of supply.