Answer to Question #313071 in Microeconomics for Jay

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 population decline causes a movement in the demand curve inwards, but a rise in fertilizer costs affects the quantity of supply to the market since farmers will no longer afford what they could before the prices climbed, causing a shift in the supply curve inwards as well.

The movements result in a minor price drop and a significant reduction in the amount requested.

This is seen in the diagram below.