Assignment:
For each of the situations below analyze what happens to the supply and demand curves, and then decide the impact on the equilibrium price and quantity in the market for lemonade. Graphs as part of your answer are welcome and encouraged.
a. Suppose this market is initially in equilibrium and then the price of lemons, a key ingredient in lemonade, increases. What do you predict will happen to the equilibrium price and quantity of lemonade due to this change?
b. Suppose this market is initially in equilibrium and then the Surgeon General's Office issues a report highlighting the health benefits from drinking lemonade. Holding everything else constant, what do you predict will happen to the equilibrium price and quantity of lemonade due to this change?
c. Suppose this market is initially in equilibrium and then both the price of lemons and the Surgeon General's Report (this events are described in parts (a) and (b)) simultaneously occur. What do you predict will happen to the equilibrium price and quantity of lemonade due to these changes?