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.

As the orange serves as an input, the price of orange juice will raise from $P_1$ to $P_2$, but the amount demanded will decrease from $Q_1$ to $Q_2$ . As a result, the supply curve will shift to the left (from $S_1$ to $S_2$), resulting in a drop in orange supply.

b.

Because hotels in New England are a substitute for hotels in Caribbean resorts, if the weather improves, demand for hotels in Caribbean resorts will decrease (from $Q_1$ to $Q_2$), the price will decrease (from $P_1$ to $P_2$ ), and the demand curve will shift to the left (rom $D_1$ to $D_2$)).

c.

Because steel is an input for minivans, if steel prices rise (from P 1P 1 to P 2P 2), the cost of producing minivans will rise (from $Q_1$ to $Q_2$), and the quantity requested of minivans would reduce (from $Q_1$ to $Q_2$). As a result, the supply curve will shift to the left (from $S_1$ to $S_2$ ), while the demand curve will shift to the right (from $S_1$ to $S_2$).

d.

Because station wagons are minivan alternatives, an increase in the quantity demanded for minivans will result from a price increase for station wagons. As a result, the equilibrium price (from $P_1$ to $P_2$), the equilibrium quantity (rom $Q_1$ to $Q_2$)), and the demand curve (from $D_1$ to $D_2$) will all climb (from $P_1$ to $P_2$).