Answer to Question #308531 in Microeconomics for Nthabiseng

Question

The population in country c decreases due to lower birth rate. At the same time there is an increase in the cost of fertilizers, which is used to grow. vegetables. Explain how the market for this vegetables will be affected by this changes. Indicate how equilibrium price and equilibrium quantity will be affected by this changes

Answer 1

The decrease in the lower birth rate results in a decrease in the labor workforce, and an increase in the cost of fertilizers causes an increase in the cost of production for the vegetable. Therefore a decrease in supply and an increase in demand will cause an increase in equilibrium price, whereas the effect on equilibrium quantity cannot be determined.

An increase in the cost of production will cause the production of smaller quantities, thus shifting the supply curve to the left. Initial equilibrium point E changes to new equilibrium point E¹, due to a leftward shift(decrease) in the supply curve (S¹), and a rightward shift of demand curve D¹. Thus;

Equilibrium price rises from p to p¹ and Equilibrium quantity there is no change (Q)