Answer to Question #97175 in Microeconomics for Ahsan

Question

Explain each of the following statements using
supply-and-demand diagrams.
a. “When a cold snap hits Florida, the price
of orange juice rises in supermarkets throughout
the country.”
b. “When the weather turns warm in New England
every summer, the price of hotel rooms in
Caribbean resorts plummets.”
c. “When a war breaks out in the Middle East, the
price of gasoline rises and the price of a used
Cadillac falls.”

Answer 1

a.       Cold weather destroys the orange crop, reducing the supply of oranges. The new

equilibrium price is higher than the old equilibrium price.

1. Many people often shift from New England to Caribbean to escape the cold weather. Due to this the demand for Caribbean hotels during the winter. In the summer, fewer people travel to the Caribbean, because northern climates are more favorable. The demand curve shifts to the left in the demand curve. The equilibrium price of Caribbean hotel rooms is thus lower in the summer than in the winter, as shown;

1. When a war breaks out in the Middle East, many markets are affected since there is a large amount of crude oil is produced there. The war disrupts the oil suppliers shifting the supply curve for gasoline to the left as shown in Figure 3. The result is a rise in the equilibrium price of gasoline.

Increase in price for gasoline leads to increase in the cost of operating a gas guzzling automobile like Cadillac's.. As a result, the demand for use Cadillac's will decline, as people in the market for cars will not find Cadillac's as attractive. This leads to a shift in the demand curve for used Cadillac's to the left while the supply curve shifts to the right. The result is a decline in the equilibrium price of used Cadillac's.