Question 1 Graph the supply and demand curves for the breakfast cereal market and properly label the current or initial cquilibrium price and quantity. Then, show the effect on the equilibrium price and the equilibrium quantity from each of the following changes or shocks. Consider each shock separately; that is, provide a separate graphical representation, assessment of the impact on equilibrium price and quantity, and corresponding explanation of each casc. 1a. ( 30 POINTS) The price of muffins declines, assuming muffins and breakfast cereal are substitutes. 1b. ( 30 POINTS) The price of wheat, a key input in the production of breakfast cereal, declines. Notice: (1) You shall type in the response/reply to this DF. (2) Regarding the requested graphical analyses, you may attach a file(s) with the requested graphs; e.g., (a) you may draw them by hand, take a picture, and then attach the picture file to your reply/response; or ( 2 ) draw the graph, say, in PowerPoint and then upload this file in PPT, PDF, or Picture format; or insert the file in the response/reply blank space if possible.

As an AI text-based model, I'm unable to directly create or upload images or files. However, I can describe how to draw the graphs and explain the changes in equilibrium price and quantity for each scenario. ### Initial Graph Setup 1. **Demand Curve**: Draw a downward-sloping demand curve for breakfast cereal. Label the horizontal axis as "Quantity" and the vertical axis as "Price." 2. **Supply Curve**: Draw an upward-sloping supply curve for breakfast cereal. The supply curve should intersect the demand curve at the initial equilibrium point. 3. **Initial Equilibrium**: Label the initial equilibrium price as P1 and the initial equilibrium quantity as Q1. This is where the demand and supply curves intersect. ### 1a. The Price of Muffins Declines - **Graphical Representation**: - Since muffins and breakfast cereal are substitutes, a decrease in the price of muffins will lead to a decrease in the demand for breakfast cereal. - Shift the demand curve to the left (downward). - The new equilibrium will be at a lower price (P2) and a lower quantity (Q2). - **Impact on Equilibrium**: - **Equilibrium Price**: Decreases from P1 to P2. - **Equilibrium Quantity**: Decreases from Q1 to Q2. - **Explanation**: - Consumers will buy more muffins as they become cheaper, leading to a decrease in the quantity demanded of breakfast cereal. ### 1b. The Price of Wheat Declines - **Graphical Representation**: - A decrease in the price of wheat, a key input in the production of breakfast cereal, will lower production costs. - Shift the supply curve to the right (upward). - The new equilibrium will be at a higher price (P3) and a higher quantity (Q3). - **Impact on Equilibrium**: - **Equilibrium Price**: Increases from P1 to P3. - **Equilibrium Quantity**: Increases from Q1 to Q3. - **Explanation**: - Lower production costs encourage producers to supply more breakfast cereal at each price level. To visualize these changes, you would draw the new demand and supply curves on the same graph as the initial curves, showing the shifts and the new equilibrium points. Remember to label the new equilibrium price and quantity for each scenario.