there is equilibrium in the purely competitive market for oranges and the optima

Question

there is equilibrium in the purely competitive market for oranges and the optimal amountn of oranges is being produced. explain if and how the optimal amount of oranges will change if the following events occur:

a. new fertilizers increase the yields of orange trees

b. frost destroys part of the orange crop

c. frost destroys part of the grapefruit crop. the resulting increase in the price of grapefruits raises the demand for oranges

d. people get tired of oranges

* when the events in the above problem occur how does the market system signal that something has changed and how does it provide incentives for people to behave in constructive ways ?

Explanation / Answer

a. As the supply of orange will increase then the supply curve will shift to right make optimal price less and optimal quantity more i.e. people will now be getting more oranges and as demand is constant so price of oranges will fall.

b. As the supply of orange will decrease then the supply curve will shift to left making optimal price more and optimal quantity less i.e. people will now be getting less oranges and as demand is constant so price of oranges will rise.

c. As demand of oranges will rise shifting the demand curve to right which will increase both the optimal price and quantity i.e. as supply is constant so as people want more oranges so price will rise and at greater price more oranges will be available in the market.

d. As demand of oranges will fall shifting the demand curve to left which will decrease both the optimal price and quantity i.e. as supply is constant so as people want less oranges so price will fall and at lesser price less oranges will be available in the market.

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