Question

Two events occur simultaneously in the market for beet juice:

Event 1: Scientists at Texas A&M University discover a better way to fertilize beet plants so that productivity of each beet plant is doubled.

Event 2: The New England Journal of Medicine publishes research results showing “conclusively” that consumption of beet juice decreases the risk of heart disease.

Using demand and supply analysis (i.e., draw a graph and label all curves and axes) predict what is likely to happen to the equilibrium price of beet juice and the equilibrium quantity of beet juice.

Answer 1

Event 1 will increase the supply of the beet roots and that will shift the supply curve to the right, the new equilibrium will be at a lower price and higher output level.

Event 2 the report will increase the demand for the beet root. It will shift the demand curve to the right i.e. the new equilibrium will be at a higher price and higher output.

After the two events the price will be indeterminate and the quantity of the beet root in the market will increase. It is shown in the graph below. As one is increasing the price and other event is decreasing it.

here, the equilibrium earlier was at A not it is at B (for representation purpose ) the change in the price will depend on the net effect of change in the demand and supply.