Question

Please read the economic news "Frigid Florida Winter Is Bad News for Tomato Lovers", USA Today, March 5, 2010 from your Parkin Textbook - Microeconomics 10th edition (PDF file was sent to you) on pp. 98–99 . You need to study the textbook sample "ECONOMIC ANALYSIS", which should be similar to your A2 and A3 economic case analysis, and then please answer the following four questions according to A1 requirements (each question has an equal weight of 25%):

a). Which demand is more price elastic and why: tomatoes in general or Florida winter tomatoes?

b). When cold weather destroyed the Florida crop and more tomatoes came from Mexico and greenhouses, what happened to the supply of tomatoes and the quantity of tomatoes supplied?

c). The news article says the “High demand has driven up prices and wholesalers are buying from Mexico.” What does this statement mean? Did demand increase? Did it decrease? Is the news article correct?

d). Reggie Brown says “We’re obviously losing market share to Mexico, and there’s always a price to pay to get the customer to get back into the Florida market.” What does he mean and what does that imply about the elasticity of demand for Florida tomatoes when the price rises and when the price falls

Answer 1

(a) Since the level of prices are higher for winter Florida tomatoes, in general the price elasticity of winter tomatoes would be higher than tomatoes ni general.

(b) When the cold weather destroyed the Florida crop in winter, supply of Florida crop reduced shifting the supply curve to the leftwards. But, since tomatoes were supplied from Mexico due to the Florida supply shock, quantity supplied increased so as to match the demand. This increase in quantity supplied id derived from the difference in demand and supply at mexico prices in florida.

(c) The news article says the “High demand has driven up prices and wholesalers are buying from Mexico. This is in context of the relative demand. Since, supply reduced to less than a quarter of expected supply, relative demand is higher than the supply which has driven up the prices. This doesn't mean that the demand has increased but that the demand is higher as compared to supply.

(d) This means that since the tomatoes are bought from Mexico that are sold at lower prices, a higher market share for tomatoes is lost to Mexico. In order to regain the share of market, the only way is to increase the supply at a lower price. This means losses or lesser profits for Florida tomato growers. This implies that Florida market for tomatoes is very price elastic and with a small increase in prices quantity fall by larger proportion and at the same time with a small decrease in prices, quantity increases by a larger proportion as compared to fall in prices.