Here, the price of one pumpkin is very high ($15). Using the colored arrows shown, explain how supply and demand caused pumpkins to be so expensive.
To explain how supply and demand caused pumpkins to be so expensive, we can use colored arrows to illustrate the relationship between these two factors.
1. Start with a vertical arrow pointing upwards representing the demand for pumpkins. This indicates that there is a high demand for pumpkins from consumers.
2. Now, draw a horizontal arrow pointing to the right representing the supply of pumpkins. This shows that the supply of pumpkins is relatively low.
3. Next, draw a dotted line horizontally from the vertical demand arrow to the horizontal supply arrow. This represents the market equilibrium, where the quantity demanded equals the quantity supplied, and the price is at a reasonable level.
4. Now, shift the demand arrow upwards, indicating that the demand for pumpkins has increased. This can be due to various factors such as Halloween approaching or a popular pumpkin-based recipe trending.
5. As the demand increases, draw a diagonal arrow from the new demand level, crossing over the original supply arrow. This shows that the quantity demanded now exceeds the quantity supplied, creating a shortage in the market.
6. With a shortage of pumpkins, the price begins to rise. Draw a vertical arrow pointing upwards from the original equilibrium price level to show this increase in price. This indicates that consumers are willing to pay a higher price to obtain the limited supply of pumpkins.
7. As the price increases, it incentivizes suppliers to produce more pumpkins. Draw a new supply arrow pointing to the right, indicating that the supply is now increasing to meet the higher demand.
8. As the supply increases, draw a dotted line horizontally from the new supply arrow intersecting the vertical demand arrow at a higher quantity and price level. This represents the new market equilibrium with both a higher quantity supplied and a higher price per pumpkin.
9. Finally, draw a vertical arrow pointing upwards from the new equilibrium price level to represent the new expensive price of pumpkins. This arrow shows how the combination of increased demand and limited supply has caused the price of pumpkins to become expensive.
By using these colored arrows, we can visually demonstrate how supply and demand interact to create a situation where pumpkins become expensive due to the equilibrium shifting to a higher price level.