Answer to Question #297139 in Microeconomics for Malik

Question

Consider the following events: Scientists reveal that

eating oranges decreases the risk of diabetes, and at

the same time, farmers use a new fertilizer that makes

orange trees produce more oranges. Illustrate and

explain what effect these changes have on the

equilibrium price and quantity of oranges.

Answer 1

The demand for oranges will increase and this leads to an increase in the price of oranges. Farmers using fertilizer to increase the supply of oranges and again reducing the prices. Simultaneous increase in demand and supply causes a slight increase price and an large change in the quantity demanded.