Answer to Question #139822 in Microeconomics for suhas pancholi

Question

U.S. apple juice and cider production increased from 86 million gallons in 1970 to around 200 million gallons in late 1990. We assume that imported apple juice is differentiated by country of origin, where apple juice imports from Brazil and China (for example) are considered imperfect substitutes due to origin-specific factors. However ,there is a huge surge in the demand for the apple juice in various seasons. Suppose that in one summer the weather is very hot. How does this event affect the market for apple juice? Initially the equilibrium price is $3, quantity demanded and supplied is 5 bottles of apple juice. Further increase in demand affects equilibrium .Illustrate how an Increase in Demand affects the Equilibrium and how a Decrease in Supply Affects the Equilibrium if the price of cider is increasing with the help of graph ?

Answer 1

An Increase in Demand increases both Equilibrium price and quantity, and a Decrease in Supply increases the equilibrium price and decreases the equilibrium quantity.