Suppose, ceteris paribus, that the supply of immigrant labor increases in the U.

Question

Suppose, ceteris paribus, that the supply of immigrant labor increases in the U.S. and simultaneously the FDA releases new information that conclusively establishes a link between a decrease in the risk of certain cancers and the consumption of oranges. Which of the following statements is correct? a. The price of Florida oranges will increase and the quantity will increase. b. The price of Florida oranges may increase and the quantity may increase. c. The price of Florida oranges will decrease and the quantity will increase. d. The price of Florida oranges will not change but the quantity will increase. e. the price of Florida oranges may decrease and the quantity will increase.

Explanation / Answer

Now, assuming that the increase in demand is equal to the increase in supply

The price of a commodity is affected by the market forces of demand and supply for that commodity. In our question, we have been told that the supply of immigrant labourers is increasing in the US, due to this increase, the supply of Florida oranges will increase as the number of labourers would increase leading to a higher production. Simultaneously, with the information from FDA regarding the decrease in risk of cancer due to consumption of oranges, people will be willing to buy more quantity of oranges. This would increase the demand for the Florida Oranges. Thus, both the demand and the supply of Florida Oranges will increase simultaneously.

Now, assuming that the increase in demand is equal to the increase in supply

Thus, Price will not change but quantity will increase.

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