Question

explain to me using demand and supply and the market in a stable equilibrium what you would expect to happen to the Florida market for Apalachicola oysters if a harmful algal bloom (HAB) destroyed oyster beds in Texas and Louisiana (Do not research actual oyster markets, consider this as hypothetical). Note that Louisiana and Texas oysters are substitutes for Apalachicola oysters so you need to first think about what happens to the prices for those oysters and then the impact that will have on the market for Apalachicola oysters.

Answer 1

D0 and S0 are the initial demand and supply curves.

As a harmful algal bloom (HAB) destroyes oyster beds in Texas and Louisiana, the supply curve of Texas and Louisiana oyesters will decrease and the supply curve will shift leftward from S0 to S1. That is, less will be supplied at each price level. The equilibrium price now increases from P0 to P1.

Since Louisiana and Texas oysters are substitutes for Apalachicola oysters, the increase in price of Louisiana and Texas oysters will result in increased demand of Apalachicola oysters. This is so because the Apalachicola oysters are now relatively cheaper with respect to Louisiana and Texas oysters.

As a result, the demand for Apalachicola oysters will increase and the demand curve will shift rightward from D0 to D1. At the intersection of D1 and S0, the equilibrium price now increases from P0 to P1 and equilibrium quantity increases from Q0 to Q1.