Question

3. How changes in the market for output affect the demand for labor In this question, you'll explore the effect of a flood in Vermont on the price of blueberries in the United States, as well as on the daily wages of blueberry pickers in Florida. Assume that blueberry buyers don't care whether their blueberries come from Vermont or Florida. On the following graph, show the effect the flood in Vermont has on the market for blueberries in the United States by shifting either the demand curve, the supply curve, or both. Market for Blueberries in the United States 10 9 Supply Demand 8 7 Supply PRICE (Dollars per pint) Demand 2 1 0 0 50 500 100 150 200 250 300 350 400 450 QUANTITY (Mllions of pints of blueberries)

Answer 1

1)

leftward shift there is supply New curue 10 8 7 6 initial supply 5 - 4 3 clemand 2 o 50 100 150 200 250 300 350 400 450 soo Quantity

(Supply of blueberries comes mainly from Vermont and Florida.Due to flood, quantity supplied of blueberries from Vermont will fall. Even though there is no change in quantity supplied from Florida, total quantity supplied in the US market will decrease due to the fall in the quantity supplied from Vermont. As a result supply curve will shift to Left as shown in the following diagram.

As a result of the shift, equilibrium price rises from 5 to 7 and equilibrium quantity falls from 250 to 150.)

2) First blank - Raise

(If supply of good is reduced, while demand remains unchanged , price of the good will raise. Following diagram will give you a more clear picture.

DD is the demand curve for blueberries and SS is the initial supply curve of blueberries. Equilibrium in the market is established by the intersection of SS and DD at point E. P is the equilibrium price and Q is the equilibrium quantity. Now, due to the fall in supply, SS shifts to left. S1S1 is the new supply curve. Intersection of S1S1 with DD at E1 leads to the establishment of a new equilibrium in the market. P1 is the new equilibrium price which is greater than previous equilibrium price P and Q1 is the new equilibrium quantity which is less than previous equilibrium quantity Q.

3)

wage ( Dollars per worker Clemad Labor wow demand der de workers Thousa ands of Supply

(Flood in Vermont results in a rise in price of blueberries.US consmers doesn't care whether the blueberries come from Vermont or blueberries. Therefore, in order to fulfill the additional demand created due to the fall in supply from Vermont and to reap the benefits from higher prices, producers from Florida will increase the supply of blueberries.ln order to increase the supply of blueberries, they will have to employ more labourers ( blueberry pickers). Therefore, demand for labour will raise in Florida and the labour demand curve will shift to right. Intersection of new labour demand curve with initial labour supply curve will lead to an increase in the quantity of blueberry pickers employed and an increase in wage rate for the blueberry pickers in Florida.)

4) Second blank - increase

( An increase in labour demand while the labour supply remains unchanged would lead to an increase in wage rate. following diagram will give you a better understanding.

wy w wage S Q Quontity of labour employed

DD represents the demand for blueberry pickers in . SS represents the supply of blueberry pickers. Initial equilibrium in the market is determined by the intersection of SS and DD at E. Equilibrium wage rate is W and Q amount of blueberry pickers are employed. As the demand for blueberry pickers increases , demand for labour curve shifts to right from DD to D1D1. Intersection of initial labour supply curve SS with D1D1 leads to at E1 establishes the new equilibrium in the market.W1 , the new wage rate is higher than W and Q1 the new amount of blueberry pickers employed is higher than Q.