Answer to Question #313070 in Macroeconomics for Jay

Question

The population in country C decreases, due to a lower birth rate. At the same time, there is an increase in the cost of fertilizer, which is used to grow vegetables. Explain how the market for vegetables will be affected by these changes. Clearly indicate how the equilibrium price and equilibrium quantity will be affected by these changes. Make use of a combination of diagrams and verbal explanation to explain your answer. Note that your diagrams should be properly annotated and that marks will be deducted for any missing labels on your diagram.

Answer 1

a)

The graph below shows the effects of the decrease in population on the equilibrium market of vegetables.

A decrease in population leads to a decrease in the number of customers of vegetables. This causes a shift of the demand curve to the left. The equilibrium price of vegetables falls from point P₀ to P₁ while equilibrium quantity decreases from Q₀ to Q₁. Hence a fall of the market equilibrium.

b)

The graph below shows the effects of the increase in the cost of fertilizers on the equilibrium market of vegetables.

An increase in the cost of fertilizers increases the cost of production which leads to a decrease in supply. This causes the supply curve to shift to the left. The equilibrium price of vegetables rises from P₀ to P₁ while equilibrium quantity decreases from Q₀ to Q₁.