Answer to Question #183651 in Microeconomics for Nellie Ndala

Question

Lettuce and spinach are substitutes while lettuce and tomatoes are complements. Lettuce is a normal good. Twenty per cent (20%) of the lettuce crop is destroyed by floods in Mpumalanga. Use graphs throughout to illustrate your answers.

2.1.1 As a result of the floods, you would expect: (3 marks)

(a) the price of lettuce to increase, the supply of lettuce to increase and the quantity of lettuce demanded to decrease

(b) the supply of lettuce to decrease, the price of lettuce to increase and the equilibrium quantity of lettuce to decrease

(c) the price of lettuce to increase and both the quantity of lettuce supplied and the quantity of lettuce demanded to increase

Answer 1

Lettuce is a normal good. Because of the floods, the crops are destroyed. This factor affects supply side. Therefore supply shifts to the left causing an increase in the equilibrium prices.

 

Option a - The Price of lettuce will increase but the supply of lettuce will not increase. Therefore, it is Incorrect.

Option c - Floods affects the supply side significantly which in turn affects the price and furhter affects the demand. Thus, it is Incorrect.

From the graph, when the supply decreases, price increases and equilibrium quantity decreases.

Option B is the correct answer.