1) Consider this statement: “Good news does existfor the industry such as the in
ID: 1233151 • Letter: 1
Question
1) Consider this statement: “Good news does existfor the industry such as the increasing per capita consumption offruits and vegetables and the sector’s projected growth inexports. Unfortunately in pursuit of such opportunities growers areattempting to balance numerous issues such as rising input costs.Furthermore, other local costs are surpassing global prices and theindustry is hurting...”
A) Does this paragraph indicate an Increase inSupply, Decrease in Supply, aDecrease in Demand, an Increase inDemand or a combination? You must explainyour answer by identifying it with the specific phrases orsentences in the paragraph
B) What is the equilibrium result of your answer? Specifically,is there a definite Increase in Equilibrium Price, in EquilibriumQuantity or both? Alternatively, is the result ambiguous? Which ofthe results is ambiguous? You must be specific.
Explanation / Answer
The demand curve is affected by things that change how muchconsumers are willing to pay for a good. For example, if theprice of a substitute goes up, then demand for the productincreases (think of how much people want Coke if the price of Pepsigoes up; sure, some people are intensely brand loyal, but somepeople will switch, increasing the total demand for Coke). Look at your paragraph. Which statements about it suggestanything about how much people like to consume it? . Frankly, the statement "increasing per capita consumption offruits and vegetables and the sector's projected growth in exports"seems to me to be a badly written question. I have a strongsuspicion that what they want to imply is that domestic and foreigndemand for the product is shifting out, but the statements areabout the quantity demanded, not the demand curve. Thedifference is that the demand curve tells you the quantity demandedat any price, whereas quantity demanded is just the quantity thathappens to be being consumed at the current price. Anincrease in per capita consumption could mean that demand hasshifted out (that people are willing to pay more for fruits andvegetables) OR it could mean that prices have dropped. Ithink they want this to indicate an increase in demand. . Now, suppose the supply curve stays the same and demand shiftsout (to the right). Draw the supply and demand curves anddraw a new demand curve to the right of the first one. Compare the two equilibria. You should notice that anincrease in demand (holding supply fixed) leads to an increase inquantity and an increase in price. . The supply curve is based on the firms' costs. Differentbooks go into different amounts of detail about the relationshipbetween supply and costs, so I'm not sure how much detail to gointo here. I'll err on the side of generality. If mycosts go up, then I need to be paid more money to produce the sameamount. So an increase in costs means my supply curve shiftsin ("in" means "to the left"), which is to say, supplydecreases. If inputs cost more, then for the same price, lessstuff will get made. . Now, suppose that demand stays the same and supply shiftsin. Draw a new supply and demand curve, and then draw a newsupply curve to the left of the first one. Compare the twoequilibria. You should notice that, when supply shifts in(holding demand fixed), prices go up and quantity goes down. . Now try shifting both demand to the right andsupply to the left at the same time. No matter how youdraw the curves, the price is always going to goup. However, you can draw it so that quantity goes up orso that quantity goes down. Make sure you can draw it bothways.Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.