Question

1. Consider the market for oranges in North America. For each of the events listed here, identify the figure above [i.e. Figures 1-16) which best represents the outcome in the orange market. Hints: See pp. 76-83 in Chapter 4 of the course text book. See also Sections 4.2 and 4.3 in the Chapter 4 Student Package, along with TYU Problems and Applications and their answers. Example: Average household income increases in the ice cream market. Answer: Figure 1 [i.e. an increase in average household income shifts the demand for ice cream to the right] [a] The price of apples increases. [b] Land used to grow oranges becomes more expensive for orange growers. (c) Advances in fertilizer technology make orange trees more productive. [d] Immigration leads to an increase in the North American population.

Answer 1

1. (a) The appropriate graph would be Figure 1.

If price of apples increases, this would mean that the quantity demanded of apple decrease, and the demand for oranges would increase, since apple and orange are supposedly substitute. Hence, the demand curve would shift right.

(b) The appropriate graph would be Figure 4.

Land used would be grow oranges is basically a factor of production, and is a factor of production becomes expensive, that would mean that the cost of production increases, and the supply would decrease. For each price level, less can be supplied than before, and the supply curve shifts left.

(c) The appropriate graph would be Figure 3.

If orange trees becomes more productive, then more oranges would be produced at the same cost (cost of making orange decreases), and hence the supply increases. As more oranges can be supplied at the same price, the supply curve shifts right.

(d) The appropriate graph would be Figure 1.

The increase in population would lead to an increase in the demand for oranges, and the demand curve would shift right.