Question

Cows are munching down zucchini, yellow squash and cabbage that Southern Valley Fruit and Vegetable farms grew and picked for restaurants and other institutions.

It’s one way the company is trying to make use of the glut of south Georgia vegetables caused by the closure of dining spots, schools and other big buyers. South Georgia farmers ship food from Florida to Canada, but the closures cost them 40- to 50% of their market. Growers are caught between being unable to sell all their crop and selling what they can in a flooded market with dropping prices. [Atlanta Journal and Constitution, May 3, 2020]

1. Draw a demand and supply diagram that illustrates the changes taking place in the vegetable market. Explain any changes you draw.
2. Assume vegetable farms operate in a perfectly competitive market. Draw a cost and revenue diagram that shows the effect on farms profits of “dropping prices"

Please don't copy other Chegg answers, thank you!

Answer 1

In order to stop the spread of Corona - virus, the country wide lockdown as well as closure of borders with Canada led to sudden fall in demand for the vegetables, which led to steep fall in prices of the vegetables and quantity consumed.

We can see the price before was P_e and the quantity demanded at the same price was Q1. After sudden fall in demand ( demand curve shifts to the left ), the price has fallen down to P2 and the quantity consumed to Q2. The new equilibrium reached is at point E2.

In a perfectly competitive market, the fall in demand would lead to economic losses to the firm as well as the industry.