Chapter 3 Question 14…Market equilibrium is achieved when the amount of product consumers are purchasing equals the amount producers are able to sale. It is the place at which supply and demand curves intersect. By studying the demand curve you can predict what will happen when Starbuck introduces their new premium coffee. Demand will rise significantly causing a shift in the demand curve to the right. This shift to the right is along the supply curve causing an increase in quantity supplied and an increase in prices to achieve market equilibrium. Supply can be tracked using the supply curve. If supply of the premium coffes suffers due to a hard freeze in Brazil’s crop which decreases the amount of coffee available the supply curve will now shift to the left causing a rise in equilibrium price and causing a fall in equilibrium output. The lower level of supply of premium coffee will cause the price of that coffee to rise. The demand curve will remain constant but as supplies decrease it causes a shift to the left along that demand curve which lowers quantity supplied but raises the price of coffee.
Chapter 3 Question 15. Using crops for food has an effect on prices because their use becomes something other than consumption by humans and livestock. In order to answer the question of how Biofuel legislation and Arctic freeze affected the prices of food in the United States in 2007 you have to examine the supply levels for the production of both fuel and food as well as the level of economic growth worldwide. Farm prices of commodities