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During holiday season in 2014, Italian news reported that an artichoke exploded in a woman's kitchen.
During holiday season in 2014, Italian news reported that an artichoke exploded in a woman's kitchen. You work as a market analyst, your boss asks you to evaluate the market effects of this news event. Based on estimation, in the market for fresh aritchokes (market 1) Q_D(1) = 22 - 3P_1 + P_2 and Q_S(1) = 2 + P_1 and in the market for canned artichokes (market 2) Q_D(2) = 4 - 2P_2 + P_1 and Q_S(2) = 1 + P_2
a) calculate the equilibrium quantity and price in each market in perfect competition
b) After the news event, you estimate that Q_D(1) = 12 - 3P_1 + P_2. Calculate the new equilibirum
c) If someone assumes that P_2 does not change after the news shock, would he/she over-estimate or underestimate the effect of the news shock on price of fresh artichokes and why?
