Reference no: EM133271937

Question 1 Toyota cars and Honda cars are substitutes. If a technological breakthrough reduced the cost of producing Toyota cars:
a. What would happen to the supply of Toyota cars?
b. What would happen to the price of Toyota cars and the quantity exchanged?
c. What effect would this change in the price of Toyota cars have on the market for Honda cars? d. Draw graph(s) for each answer, respectively.

Question 2 The price of coffee dropped sharply last month, while the quantity sold remained the same. Each of five people suggests an explanation:
A: demand decreased, but supply was perfectly inelastic;
B: demand decreased, but it was perfectly inelastic;
C: demand decreased, but supply increased at the same time;
D: supply increased, but demand was unit elastic;
E: supply increased, but demand was perfectly inelastic.

a. Draw each graph of demand and supply curves for each explanation of A,B,C,D,E, respectively.

b. Whose explanations are correct?