The demand curve and the increase in average income

  1. Does an increase in average income cause a shift of the demand curve for coffee or a movement along the demand curve? Explain briefly.
  2. The estimated supply function for avocados is Q = 58 + 15p – 20pf, where pf is the price of fertilizer. Determine how much the supply curve for avocados shifts if the price of fertilizer rises by $1.10 per lb. Illustrate this shift in a diagram. Explain why a change in the price of fertilizer causes a shift in the supply curve for avocados rather than a movement along the supply curve for avocados.
  3. Coffee is the most popular beverage in Greece. A large proportion of the coffee consumed in Greece is imported from Brazil. What effect would a drought that severely reduces coffee production in Brazil have on the price and quantity of coffee in Greece? What effect would the drought have on the price of tea, a substitute for coffee, in Greece? Use supply and demand diagrams in your answer.

Sample Solution

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