1. Let's consider the market for jelly (as in something you put on a peanut butter and jelly sandwich), where the suppliers are firms who produce and sell jelly directly to demanders, and demanders are the consumers who buy jelly. With this in mind, answer the questions below. Bear in mind as you answer, however, that when describing the effect of something on a market, you must not only address the shifting of curves, but also explain how the equilibrium price and quantity will change as well.
a. Use the demand and supply model to explain how increases in the price of fruit affect this market.
b. Use the demand and supply model to explain how a recession (with falling average income across all consumers) will affect this market.
c. Use the demand and supply model to explain how having jelly producing firms go out of business affects this market.
d. Rumors begin to spread amongst consumers that the price of jelly is about to increase significantly in the upcoming week. Use the demand and supply model to explain how this change in (current) consumer expectations on the future price of jelly affects this market