Answer to Question #169259 in Microeconomics for EUGINE HAWEZA

Question

Explain each of the following statements using supply-and-demand diagrams.

a)“When a cold snap hits Florida, the price of orange juice rises in supermarkets throughout the country.”

b)“When the weather turns warm in New England every summer, the price of hotel rooms in Caribbean resorts plummets.”

c) “A strike by steelworkers raises steel prices.”

d) “The price of station wagons rises."

Answer 1

(a)

The price of the orange juice will rise from $P_1$ to $P_2$ (beacausu the orange is input for the orange juice) and the quantity demanded will fall from $Q_1$ to $Q_2$. As a result, the supply curve will shift to the left (from $S_1$ to $S_2$) and supply of oranges decreases.

(b)

Hotels in New England are the substitute for the hotels in Caribbean resort, therefore, if the weather rises the demand for hotels in New England, the demand for the hotels in Caribbean resort will fall (from $Q_1$ to $Q_2$), the price will reduces (from $P_1$ to $P_2$) and the demand curve will shift to the left (from $D_1$ to $D_2$).

(c)

If the steel prices rises (from $P_1$ to $P_2$) due to a strike by steelworkers, the cost of producing of minivans will rise (because the steel is input for the minivans) and the quantity demanded of the minivans will fall (from $Q_1$ to $Q_2$). As a result, the supply curve will shift to the left (from $S_1$ to $S_2$).

(d)

Since the station wagons are the substitutes for the minivans, the rise in price of the station wagons will lead to increase in quantity demanded for the minivans. As a result, the equilibrium price will rise (from $P_1$ to $P_2$), the equilibrium quantity will rise (from $Q_1$ to $Q_2$) and the demand curve will shift to the right (from $D_1$ to $D_2$).