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. 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 a wildfire destroys a large number of orange farms, the production of oranges decreases by a significant amount, leading to a fall in the supply of oranges. When supply of oranges decreases, the supply curve for oranges shifts to the left. The demand for oranges assuming to be the same, decreased supply results in a higher equilibrium price of oranges and lower equilibrium quantity of oranges.

In following graph, price of oranges is measured along vertical axis and quantity of oranges is measured along horizontal axis. D0 and S0 are initial demand and supply curve of oranges respectively, which intersect at initial equilibrium point A with initial equilibrium price P0 and equilibrium quantity Q0. As supply decreases, the supply curve shifts leftward 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, falls, then quantity demanded of apples will increase and demand for oranges will decrease. Therefore, the demand curve for oranges shift to left. The supply for oranges assumed to be the same, lower demand results in a lower equilibrium price of oranges and higher equilibrium quantity of oranges.

In following graph, price of oranges is measured along vertical axis and quantity of oranges is measured along the horizontal axis. D0 and S0 are initial demand and supply curve of oranges respectively, intersecting at initial equilibrium point A with initial equilibrium price P0 and equilibrium quantity Q0. As demand decreases, the demand curve shifts leftward to D1, intersecting S0 at point B with lower equilibrium price P1 and lower equilibrium quantity Q1.