A high level of understanding is demonstrated through the ability to teach others.

A high level of understanding is demonstrated through the ability to teach others. In this assignment you are to assume that you are writing for a high school student that needs you to teach him or her how to analyze a market using the demand/supply model. Be detailed, specific and clear in your word-processed, textual explanations as you consider the market for “Conventional Burning Cigarettes.”

he required readings for Module 1 and based on the textbook demand/supply model of Chapter 3, answer the following in question and answer format. There is no need to repeat the question as part of your answer – a number followed by an answer will suffice. (Please note that if you believe there is a demand change in #1 then #3 must be a supply change. If you believe there is a supply change in #1 then #3 must be a demand change. It is only in #5 where there is a change in both demand and supply together.) 

  1. If the number of young people choosing to smoke conventional burning cigarettes is declining would this, ceteris paribus, be reflected as a change in demand or a change in supply in the market for Conventional Burning Cigarettes? Explain. Be sure to clearly identify a textbook variable or determinant that is causing this change. Would this change be an increase or decrease? Explain. Would this change result in a surplus or in a shortage in the market for Conventional Burning Cigarettes? Explain. Given this surplus or shortage, how will a new equilibrium be established? What do you predict will happen to the equilibrium price and the equilibrium quantity exchanged in the market for Conventional Burning Cigarettes? Explain.
  2. Illustrate your change in #1 on a graph of the market for “Conventional Burning Cigarettes.” Label your graph fully using the “sample graph for the Milk Market” (see that PDF) as an example. Be sure to clearly indicate the surplus or shortage distance and what happens to equilibrium price and equilibrium quantity exchanged on your graph using arrows. Provide a legend as well.
  3. If the companies that produce conventional burning cigarettes also produce E-cigarettes and the prices and profits on E-cigaretts are rising relative to the prices and profits on conventional burning cigarettes would this, ceteris paribus, be reflected as a change in demand or a change in supply in the market for Conventional Burning Cigarettes? Explain. Be sure to clearly identify a textbook variable or determinant that is causing this change. Would this change be an increase or decrease? Explain. Would this change result in a surplus or in a shortage in the market for Conventional Burning Cigarettes? Explain. Given this surplus or shortage, how will a new equilibrium be established? What do you predict will happen to the equilibrium price and the equilibrium quantity exchanged in the market for Conventional Burning Cigarettes? Explain.
  4. Illustrate your change in #3 on a graph (yes a second one) of the market for “Conventional Burning Cigarettes.” Label your graph fully using the “sample graph for the Milk Market ” (see that PDF) as an example. Be sure to clearly indicate the surplus or shortage distance and what happens to equilibrium price and equilibrium quantity exchanged on your graph using arrows. Provide a legend as well.

Just so you are clear on the level of detail and clarity I’m looking for, if the assignment was asking about the market for Milk, an outstanding answer might, in part, go something like this:

  1. A government subsidy is a variable or determinant of supply. An increase in a subsidy to dairy farmers has the effect of offsetting production cost, leading to greater profit potential. These farmers should respond to increased profit potential by being willing and able to produce and supply more milk to market at each and every possible price. This is called an increase in supply and is illustrated graphically by a shift of the existing supply curve (S1) to the right. The new supply curve reflecting this increased subsidy is labeled S2, which, as seen on my graph, is clearly to the right of S1. With no change in demand, this increase in supply will result in quantity supplied being greater than quantity demanded at the current market price. This is called a market surplus. The surplus is illustrated graphically as the distance between the demand curve and the new supply curve at the current market price. This surplus will cause market price to fall until a price is reached where a new equilibrium (E2) is established – a price at which quantity supplied again equals quantity demanded. This new equilibrium is composed of a new lower equilibrium price (Pe2) and a new higher equilibrium quantity exchanged (Qe2).
  1. If the change in #1 and the change in #3 happened in concert (at exactly the same time), what do you predict will happen to the equilibrium price and equilibrium quantity exchanged of Conventional Burning CigarettesExplain your thinking in words (text) and illustrate on a fully labeled graph (yes a third one!). Provide a legend for your graph as well.

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