This problem is about the market for peanut butter. Bad whetherand tornadoes in           Georgia greatly affected the peanut crop, and as a result themarket price of peanuts increased.
2i.       Suppose the priceof peanuts increased from 20 cents per pound to 30 cents per pound,   and the quantity of peanuts purchased fell from275 million pounds per month to 225      million pounds. The priceelasticity of demand for peanuts is
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2ii.      What is the effect ofthe change in the peanut market for the market for peanutbutter?
           a.        Demand forpeanut butter decreases.
           b.        Supply of peanutbutter decreases.
           c.        The price ofpeanut butter increases.
           d.        Both answers band c are correct.
           e.        Both answers a and care correct.
2iii.     Suppose jelly is acomplement to peanut butter. What is the effect in the jelly marketof the change in the peanut market and the peanut buttermarket?
           a.        Demand for jellydecreases.
           b.        Demand for jellyincreases.
           c.        Supply of jellydecreases.
           d.        Supply of jellyincreases.
           e.        Both answers a andc.
2iv.     Suppose the strawberry cropis unusually large resulting in a decrease in the price of       strawberries and adecrease in the price of strawberry jelly. What would happen to theequilibrium price and quantity of peanut butter from thecombination of the change in the      peanut market and the change in the strawberry market?
a. | Price will fall and the effect on quantity is ambiguous. |
b. | Price will rise and the effect on quantity is ambiguous. |
c. | Quantity will fall and the effect on price is ambiguous. |
d. | Quantity will increase and the effect on price is ambiguous |
e. | The effect on both price and quantity is ambiguous. |
2v.      Suppose the incomeelasticity of demand for Jiff brand peanut butter is +.5, whereasthe      income elasticity of demand forstore brand X peanut butter is -.3. If income increases by   10 percent, how much does consumption of Jiffpeanut butter change and how much does          consumption of brand X peanut butter change?
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