(7 points) Refer to the graph of supply and demand for avocados to answer the qu
ID: 1150654 • Letter: #
Question
(7 points) Refer to the graph of supply and demand for avocados to answer the questions below. a. What is the equilibrium price of avocados for this market? b. What is the equilibrium quantity exchanged in this market? c. If the price is fixed at $3, would it cause a surplus or a shortage of avocados? d. How large would this disequilibrium (i.e. the shortage or the surplus) be? e. What would happen to the size of the disequilibrium (surplus or shortage, whichever you indicated existed in c) if the demand increases? Recent fires in California are likely to decrease the amount of avocados available to this market. In the graph, show how this would affect market supply curve. f. g. In a free market where prices adjust in response to market forces, what would be expected to happen to the price of avocados given this change in supply? Supply Demand 0 200 400 600 800 1000 1200 Quantity (millions per year)Explanation / Answer
Answer : a) The equilibrium condition occur at that point where demand equal to supply. According to the given diagram information the equilibrium price level is $3.5
b) According to the diagram the equilibrium quantity level is 500 millions per year.
c) If the price level is $3 then according to the diagram there occurs excess demand. This means there is shortage of avocados.
d) According to the diagram at $3 price level supplied quantity is 400 millions and demand for avocados is 600 millions. Therefore, at this disequilibrium the shortage amount of avocados is (600 - 400) = 200 millions .
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