Question

Take the market for raspberries. Blueberries and raspberries are substitutes in both, consumption and production, and ice cream and raspberries are complements. Raspberries are a normal good. For each of the following events, predict the impact on demand, supply, and the equilibrium price and quantity for raspberries. a) (2) The price of cream which is used to make ice cream increases b) (2) Blueberries have become cheaper. c) (2) Farmers expect less profits and yield from growing blueberries than from raspberries in the coming years.

Answer 1

Blueberries and raspberries are substitutes in both consumption and production. This means that consumers will either consume blueberries or consume raspberries depending on which is cheaper. And producer will produce either using blueberries or raspberries depending on which is generates more profits. The price of blueberries and demand for raspberries are directly related. This means that when the price of blueberries increases demand for raspberries increases.

Ice creams and raspberries are complements. This means they are consumed together in some ratios. So when the price of ice cream increases demand for raspberries falls

(a) When the price of cream used in making ice cream increases then ice creams become expensive. Which will result in a fall in the demand for raspberries But the supply of raspberries become increases because it's profitable for suppliers to supply more because prices are increased. There will be an excess supply of raspberries but low demand, so suppliers have to decrease the price to sell more raspberries. Therefore the equilibrium price will fall but quantity remains the same.

(b) Blueberries have become cheaper.This will reduce the demand for raspberries. Consumers will purchase blueberries and producers will also produce using blueberries. Therefore equilibrium price and quantity will fall

(c) If farmers expect less profit from blueberries than raspberries, then they will produce more of raspberries than blueberries. There will be excess supply of raspberries in market. Due to excess supply, to sell the raspberries there will be reduction in price. Therefore equilibrium price will fall and quantity will increase.