Question

Create a separate file to answer the following questions and then submit it below.

Draw the complete graph for each question.

a. Draw a graph of the market for jalapeno peppers. Be sure to label everything.

b. Draw a new graph that shows what changes would occur to your graph in part ‘a’ if there was bad weather and the jalapeno pepper crop was severely damaged. Explain why you made these changes to the graph.

c. Redraw the graph you did in part ‘b’ then add the changes that would occur to the jalapeno pepper market if suddenly Mexican food became popular, especially spicy Mexican food.

d. Explain what changes we will see to in the equilibrium price and quantity in the market for jalapeno peppers after the changes have occurred in part ’b’ and part ‘c‘.

Answer 1

a. Draw a graph of the market for jalapeno peppers.

The graph below plots the demand and supply of jalapeno peppers with an initial equilibrium at A.

b. Draw a new graph that shows what changes would occur to your graph in part ‘a’ if there was bad weather and the jalapeno pepper crop was severely damaged. Explain why you made these changes to the graph.

Damage to the crop will result in less harvest. When harvest is less, firms/farmers will be able to supply less so the supply curve will shift to the left. At the original price there is now an excess demand or shortage so competition among buyers will push the price up. Hence the transition will have a higher price and reduced quantity in the equilibrium.

c. Redraw the graph you did in part ‘b’ then add the changes that would occur to the jalapeno pepper market if suddenly Mexican food became popular, especially spicy Mexican food.

If spicy Mexican food becomes popular, its demand will increase so restaurants making spicy Mexican food will demand more jalapeno pepper so its demand rises. Demand curve shifts to the right. Once again, at the previous price there is now an excess demand or shortage so competition among buyers will push the price up. Hence the transition will have a much higher price and an increased quantity in the new equilibrium from its previous level of Q2.

d. Explain what changes we will see to in the equilibrium price and quantity in the market for jalapeno peppers after the changes have occurred in part ’b’ and part ‘c‘.

We can assure ourselves that the quantity will fall in the first case (part b) and price will rise. In part c) we see that quantity is rising from its previous value so we are not sure whether the quantity will fall or rise from its original value. However price rises again. So we conclude that price rises multifold times, but whether qunatity rises or falls depends on the size of shifts.