Consider the following events: Scientists reveal that consumption of oranges decreases the risk of diabetes and, at the same time, farmers use a new fertilizer that makes orange trees more productive. Illustrate and explain what effect these change have on the equilibrium price and quantity of oranges
Answer
To understand the effect of these changes on the equilibrium price and quantity of oranges, we need to consider the supply and demand factors involved.
1. Increase in Demand:
The information presented by scientists revealing that consumption of oranges decreases the risk of diabetes can lead to an increase in the demand for oranges. This is because oranges are now seen as a healthier food option, attracting more consumers. As a result, the demand curve for oranges shifts rightward.
2. Increase in Supply:
The adoption of a new fertilizer by farmers that makes orange trees more productive will lead to an increase in the supply of oranges. More productive orange trees mean that farmers can produce a larger quantity of oranges at each price level. This leads to a rightward shift of the supply curve.
Given the simultaneous increase in both demand and supply:
- Price Effect: The increase in supply can potentially lower the equilibrium price of oranges due to the higher quantity available in the market. However, the increase in demand can offset the downward pressure on prices, resulting in an ambiguous effect on the equilibrium price.
- Quantity Effect: The increase in both demand and supply will lead to an increase in the equilibrium quantity of oranges. The new equilibrium point will be at a higher quantity compared to the original equilibrium.
Overall, the effect of these changes suggests an increase in the quantity of oranges available in the market, while the effect on price is uncertain due to the changes in both demand and supply.
To understand the effect of these changes on the equilibrium price and quantity of oranges, we need to analyze the forces of demand and supply.
1. Demand: The revelation that consumption of oranges decreases the risk of diabetes will likely increase the demand for oranges. This is because consumers may be more likely to purchase oranges due to the perceived health benefits. As a result, the demand curve shifts to the right.
2. Supply: The use of a new fertilizer that makes orange trees more productive will increase the supply of oranges. This is because the increased productivity will lead to a higher quantity of oranges available in the market. Consequently, the supply curve shifts to the right.
Now, let's look at the combined effect of these changes:
- Equilibrium Price: The increase in both demand and supply puts upward pressure on the equilibrium quantity but has an uncertain effect on the equilibrium price. If the increase in demand outpaces the increase in supply, the equilibrium price will rise. Conversely, if the increase in supply outweighs the increase in demand, the equilibrium price will decrease. The ultimate effect on the equilibrium price depends on the magnitude of the shifts in demand and supply.
- Equilibrium Quantity: The increase in both demand and supply leads to an increase in the equilibrium quantity of oranges. This is because the higher demand and increased supply result in more oranges being bought and sold in the market.
Overall, the combined effects of the increased demand and supply may lead to higher equilibrium quantity, but the direction of the equilibrium price change would depend on the relative changes in demand and supply. The exact shifts in demand and supply, as well as the corresponding changes in equilibrium price and quantity, would require more specific data and analysis.