Question

In: Economics

using well labelled diagram,explain how the equilibrium price and the equilibrium quantity of apples will change...

using well labelled diagram,explain how the equilibrium price and the equilibrium quantity of apples will change as a result of the following;
-a change in the wages of farm workers from R150 per day to R200 per day
-a decrease in the price of fertilizers and a concurrent increase in the demand for Apple juice

Solutions

Expert Solution

1.

Increase in wage, causes the increase in cost of factor of production. It causes the supply curve to shift to the leftward direction. As a result, a new equilibrium price and quantity will be formed that will be P1 and Q1 from P0 and Q0. Here, P1 will be higher than the P0 and Q1 will be less than the Q0. It means that increase in wages, will cause increase in price and decrease in output at the new equilibrium.

2.

Decrease in price of fertilizer will cause, decrease in cost of production. It will shift the supply curve to the rightward direction. Increase in demand of apple juice, will increase the demand of apple and demand curve will shift in the right direction. As a result, the output level will increase from Q0 to Q1. Increase or decrease in price depends upon the proportionate change in demand and supply. If demand changes more than the supply, then price increases (it is shown in the graph). If supply changes more than the demand, the price decreases.


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