Answer to Question #309146 in Microeconomics for Camz

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 the equilibrium quantity will be affected by these changes. Make use of a combination of diagrams and verbal explanation to explain your answer.

Answer 1

Make use of a combination of diagrams and verbal explanations to explain your answer.

Population decline as a result of low birth rates has a number of consequences.

The drop in population owing to low birth rates would result in a fall in demand for vegetables and, as a result, decreased consumption. As a result of the decline in demand, the demand curve will move to the left from D₀ to D₁, as shown in the image below.

When demand shifts to the left, the equilibrium price shifts from E₀ to E₁, which is lower than the original. The lower price will produce a market surplus, causing a movement along the supply curve to the left on the supply curve, suggesting decreased supply. All of this will result in the establishment of new market equilibrium, with quantity decreasing from Q₀ to Q₁ and price decreasing from P₀ to P₁.

Effects of increase in fertilizer price

A rise in the price of fertilizer will raise the cost of growing vegetables. As a result, the supply of vegetables will drop since growers will be ready to supply less at the equilibrium price. As seen in the image below, this will shift the supply curve to the left from S₀ to S₁.

When the supply curve shifts to the left, the equilibrium price shifts from P₀ to P₁, which is greater than the original. As the price rises, the quantity demanded falls, resulting in a new equilibrium quantity, Q₁, which is lower than Q₀.