There is equilibrium in the purely competitive market for oranges, and the optim

Question

There is equilibrium in the purely competitive market for oranges, and the optimal amount of oranges is being produced. Explain if and how the optimal amount of oranges will change if the following events occur: New fertilizers increase the yields of orange trees. Frost destroys part of the orange crop. Frost destroys part of the grapefruit crop. The resulting increase in the price of grapefruits raises the demaixi for oranges. People get tired of oranges. When the events in Problem 3 occur, how does the market system signal that something has changed, and how does it provide incentives for people to behave in constructive ways?

Explanation / Answer

3. a) when new fertilizers are used and the yield increase, the supply curve of orange will shift right ward. Due to which a new equilibrium will establish leading to reduction in the price of oranges.

     b) When forest destroyes part of the orange crop, the total production will decrease, due to which the supply curve will shift left ward.Due to which a new equilibrium will establish leading to increase in the price of oranges.

      c) when people substitute orange for grapes,the demand for grapes will increase which leads to the demand curve to shift right ward..

      d) when people get tired of oranges, the demand will decrease which leads to the demand curve to shift left ward..

4. The price of orange should be determined in such a way that it will attract people to purchase oranges.

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.