Question

Given the domestic market for Kiwi fruit,

illustrate the change in either supply or demand of the following scenarios.

Explain what caused determinant caused the shift and the resulting change to equilibrium price and quantity:

a. A storm wipes out the local Kiwi fruit industry.

b. New Zealand doubles the Kiwi fruit sent to this country.

c. The surgeon general declares Kiwi fruit to be cancerous.

d. The disposable income of Americans rises by 6%.

e. The United States imposes a 25% tariff on New Zealand Kiwi fruit.

Answer 1

In following graphs, price (P) and quantity (Q) are shown along vertical and horizontal axes respectively. D0 and S0 are initial demand and supply curves, intersecting at point A. Initial equilibrium price is P0 and quantity is Q0.

(a)

The storm will destroy kiwi crop, which will decrease market supply of kiwi. Supply curve of kiwi shifts to left, increasing price and decreasing quantity of kiwi. In following graph, S0 will shift leftward to S1, intersecting D0 at point B with higher price P1 and lower quantity Q1.

(b)

Higher amount of imports will increase the market supply of kiwi. Supply curve of kiwi shifts to right, decreasing price and increasing quantity of kiwi. In following graph, S0 will shift rightward to S1, intersecting D0 at point B with lower price P1 and higher quantity Q1.

(c)

Unfavorable health report on consumption will decrease the demand for kiwi. Demand curve shifts to left, decreasing price and decreasing quantity. In following graph, D0 will shift leftward to D1, intersecting S0 at point B with lower price P1 and lower quantity Q1.

(d)

Assuming kiwi is a normal good, highr consumer income will increase the demand for kiwi. Demand curve shifts to right, increasing price and increasing quantity. In following graph, D0 will shift rightward to D1, intersecting S0 at point B with higher price P1 and higher quantity Q1.

(e)

Higher tariff will increase domestic price, so imports will fall. This will decrease total market supply of kiwi. Supply curve of kiwi shifts to left, increasing price and decreasing quantity of kiwi. In following graph, S0 will shift leftward to S1, intersecting D0 at point B with higher price P1 and lower quantity Q1.