Answer to Question #299717 in Microeconomics for Hami

Question

9. 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

If oranges reduce the risk of diabetes, the demand will shift to the right, increasing price and quantity.

If farmers become more productive, that increases supply, increasing quantity but decreasing price.

So, we know that quantity increases but we don't know what happens to price because the two shifts affect price differently and we don't know the magnitude of each.