Answer to Question #308820 in Microeconomics for Sammy

Question

The population in country C decreases, due to a lower birth rate. At the same time, there is an increase in the cost of fertilizer, which is used to grow vegetables. Explain how the market for vegetables will be affected by these changes. Clearly indicate how the equilibrium price and equilibrium quantity will be affected by these changes. Make use of a combination of diagrams and verbal explanation to explain your answer. Note that your diagrams should be properly annotated and that marks will be deducted for any missing labels on your diagram.

Answer 1

A decrease in population will cause a shift in demand curve inwards while an increase in the price of fertilizer has an effect on the amount of supply to the market as farmers will not be able to afford what they could afford before the prices increased and hence a shift in the supply curve inwards also.

The end result of the shifts is a negligible drop in price and a more than reduction in quantity demanded.

This can be explained in the below diagram.