Question

Suppose we are analyzing the market for oranges in 2017. Graphically illustrate the impact of each of the following events would have on supply and demand curves. Also show how equilibrium price and quantity would change in each scenario. See instruction video, "Week 2_Homework Guideline.ppsm". Make sure you provide narrative discussions on each scenario to receive full credits A. In 2017, Wildfires destroyed a majority of orange farms, reducing orange production substantially (Graphical analysis + Written discussion=at least 100 words) B. The price of apple, orange substitute, decreased in 2017. (Graphical analysis + Written discussion=at least 100 words)

Answer 1

(A) If wildfire destroys a majority of orange farms, the production of oranges fall, which results in a decrease in the supply of oranges. As supply of oranges fall, the supply curve for oranges shift toward right. The demand for oranges remaining unchanged, lower supply leads to higher equilibrium price of oranges and lower equilibrium quantity of oranges.

In following graph, price of oranges is measured vertically and quantity of oranges is measured horizontally. D0 and S0 are initial demand and supply curve of oranges respectively, intersecting at initial equilibrium point A with initial price P0 and quantity Q0. As supply falls, the supply curve shifts left from S0 to S1, intersecting D0 at point B with higher equilibrium price P1 and lower equilibrium quantity Q1.

(B) If price of apples, a substitute for oranges, decrease, then quantity demanded of apples will rise and demand for oranges will fall. As a result, the demand curve for oranges shift toward left. The supply for oranges remaining unchanged, lower demand leads to lower equilibrium price of oranges and higher equilibrium quantity of oranges.

In following graph, price of oranges is measured vertically and quantity of oranges is measured horizontally. D0 and S0 are initial demand and supply curve of oranges respectively, intersecting at initial equilibrium point A with initial price P0 and quantity Q0. As demand falls, the demand curve shifts left from D0 to D1, intersecting S0 at point B with lower equilibrium price P1 and lower equilibrium quantity Q1.