Question

be original and use your own words

Consider the following events:

Scientists reveal that eating oranges decreases the risk of diabetes, and at the same time, farmers use a new fertilizer that makes orange trees produce more oranges. Illustrate and explain what effect these changes have on the equilibrium price and quantity of oranges.

Answer 1

When scientists reveal that eating oranges decreases the risk of diabetes the demand for oranges increases. Consumers want to buy more oranges now so as to avail the health benefits of orange. Demand curve shifts to the right indicating increase in the quantity demanded and increase in the equilibrium price.

At the same time, the new fertilizer helps farmers to produce more oranges and supply more. The supply curve shifts to the right, indicating an increase in the quantity supplied. As a result, price decreases. If the increase in demand and increase in supply are proportionately same, the price will be back to its original equilibrium (as sown in the graph below):

Graph:

  

Increase in demand and increase in supply result in increased quantity and indeterminate price. If the increase in demand = increase in supply, then price will be back to its original equilibrium. If increase in demand > increase in supply, price will be higher than the original equilibrium price. But if increase in demand < increase in supply, price will be lower than the original equilibrium price.