Question

Acai berries are the new big antioxidant thing. The berries only grow in the Amazon river basin. Like many agricultural products, Acai is a perfectly competitive market and involves harvesting the berries from the tops of Acai Palm trees.

A. Show the market for Acai berries, and a typical firm in a long run equilibrium.

B. Show and briefly explain how the market/firm would move to a new long run equilibrium if news got out the Acai berries are not organic, or sustainable, or all that healthy.

C. How would the market (and typical firm) be affected if Monsanto developed a genetically modified Acai berry that could be grown in the USA? You need to draw some things, and say some things to answer this.

Answer 1

A. In a perfectly competitive market the demand and supply exactly matches each other and meet at an equillibrium. The price corresponding to this point is equillibrium price and the demand corresponding to this point is equillibrium demand. It can be shown as :

The quantity supplied and demanded meet at one equillibrium point and the price corresponding to it is P' and the quantity corresponding to it is Q'.

B. As there is a news that Acai berries are not organic, the demand of the Acai berries come down, shifting the demand curve leftwards. The new equillibrium point is achieved and the price comes down to P" and the quantity comes down to Q".

C. As Monsanto developed genetically modified Acai berry, the demand of Acai berry would increase and the demand curve shifts rightwards. Thus the new equillibrium point is achieved and the price increases to P" and the quantity increases to Q".