Answer to Question #309287 in Microeconomics for Thso

Question #309287

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

1
Expert's answer
2022-03-11T08:32:27-0500

Effects of population decrease due to low birth rate

The population decrease due to low birth rates will lead to a decrease in demand for vegetables due to the low population and thus lower consumption. The decrease in demand will lead to a shift in the demand curve to the left from D0 to D1 as indicated in the diagram below.





A shift in demand to the left will shift the equilibrium price from E0 to E1 which is lower compared to the original. The lower price will create a surplus in the market and thus cause a movement along the supply curve to the left indicating a lower supply. All this will lead to creation of a new market equilibrium with quantity reducing from Q0 to Q1 and price also reducing from P0 to P1


Effects of increase in fertilizer price

An increase in fertilizer price will lead to an increase in the cost of growing vegetables. This will lead to a decrease in supply of vegetables as producers will be willing to supply less at the equilibrium price. This will shift the supply curve to the left from S0 to S1 as shown in the diagram below





A shift in the supply curve to the left will shift the equilibrium price from P0 to P1 which is higher compared to the original. The increase in price will lead to decrease in quantity demanded leading to a new equilibrium quantity Q1 down from Q0




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