Question

Explain how the following statements affect the supply of orange juice. Indicate whether the event causes an increase/decrease in supply or an increase/decrease in the quantity supplied. Show graphically.

a) Florida, “The Sunshine State”, experiences a devastatingly cold winter.

b) Thepriceofplasticdecreases.

c) The government mandates that all orange juice producers must provide child care for their employees

Answer 1

Ans) Overview ÷ Quantity supplied is the amount that sellers are willing to provide at any given price. A change in quantity supplied is caused only by change in price of good itself. Change in quantity supplied is depicted by movement along the curve.

Supply is the overall supply at different prices. A change in supply can be caused due to many factors viz. change in price of related goods in production, change in number of sellers, change in technology, change in input cost etc. Change in supply is depicted by shift in supply curve.

1) Devastatingly cold winters will destroy orange crops. As a result supply of oranges will decrease and price of oranges will increase. As oranges are input for orange juice, with increase in price of oranges, supply of orange juice will decrease as producing orange juice will become costly. And supply curve will shift to the left.

2) Plastic is an input for orange juice (orange juice is packed in plastic). With decrease in price of plastic, production of orange juice will become cheaper. As a result, supply of orange juice will increase. Supply curve will shift to the right.

3) Providing child care will increase the cost for producers. As a result, producing orange juice will become costly due to increased cost. Supply of orange juice will decrease. Supply curve will shift to the left.

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