Demand and Supply Analysis
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Florida Citrus Mutual, an agricultural cooperative association for citrus growers in Florida, needs to predict what will happen to the price and output of Florida oranges under the conditions below. What are your predictions? For each part, sketch a graph showing the appropriate demand and supply analysis.
a. A major freeze destroys a large number of the orange trees in Florida.
b. The scientists in the agricultural extension service of the University of Florida discover a way to double the number of oranges produced by each orange tree.
c. The American Medical Association announces that drinking orange juice can reduce the risk of heart attack.
d. The price of Florida grapefruit falls.
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Solution Summary
Solution discusses the impact of given events on the equilibrium price and quantity of Florida oranges.
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Please refer attached file for complete solution. Graphs are missing here.
a. A major freeze destroys a large number of the orange trees in Florida.
Destruction of orange trees will lead to a decrease in supply of oranges.
In the above graph, DD indicates demand curve of Florida oranges and SS represents supply curve of Florida oranges. M denotes initial equilibrium at which equilibrium price is at point P and equilibrium quantity is at point Q. Now destruction of orange trees will reduce the supply and supply curve will move upwards shown by S'S'.
As is clear from the above graph, new equilibrium is attained at point M'. New equilibrium price is at point P' and new equilibrium quantity is at Q'.
We can see that new equilibrium price is higher than initial equilibrium price and new equilibrium quantity is lower than initial equilibrium quantity.
We can say that destruction of orange trees will lead to increase in price and lower output.
b. The scientists in the agricultural ...
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- BEng (Hons) , Birla Institute of Technology and Science, India
- MSc (Hons) , Birla Institute of Technology and Science, India
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