Question

4. This problem relates to the news article "Rising Price of Vanilla." (Files > News Article Basic Model of a Market). The hypothetical graph below represents the market of vanilla Q Vanilla (kilograms) 1000 2000 3000 4000 5000 6000 7000 8000 9000 a. If the vanilla price were $200, what situation would arise (be exact)? Explain in one sentence and show clearly on the graph (highlight & label it). (3) b. What is the equilibrium price and quantity of vanilla? State below and show on the graph. (3) Peq = _350 Qeq=_50CO c. The news article "Rising Price of Vanilla" (Files > News Article > Basic Model of a Market), mentions several possible causes for the rise in the price of vanilla. Pick one cause, then explain it verbally using the correct economic terms and illustrate on the graph above how the change affects both equilibrium price and quantity. (4)

Answer 1

$, Price Svamtta 350 (e) 200 (sh) Dvanilla SHORTAGE, Q, Vanilla 5000 8000 300 0 (e) 4, Price Srmittat $n00 4850 ce) Dromitlar A000 5000 (54)-10) O, Vonilla

a.) If the price of vanilla was $200, there would be a shortage of vanilla. More would be demanded than produced. To be precise 3000kg of vanilla would be produced(Qs) and $8000kg would be demanded(Qd). Therefore, there would be a shortage of 5000kgs (Qd - Qs).

c.) The rise in the price of vanilla has to do with multiple factors, some of these factors are complex pollination, theft of vanilla, the rise of "natural and organic foods" movement, and extreme weather leading to deforestation.

Causing shift if the supply curve: extreme weather and deforestation, complex pollination, and theft of vanilla.

Causing shift if the demand curve: the rise of "natural and organic foods" movement.

Out of all of these factor, I will be choosing is theft of vanilla.

The theft of vanilla has been on rise because of its high demand and market volatility. This theft of vanilla directly affects the supply of vanilla in the market negatively. Due to the theft, the supply curve shifts to the left along the demand curve, and this causes the price of vanilla to rise from.

In the diagram above theft of vanilla to be sold in parallel economy would cause the supply curve of the legal market to shift to the left, this would cause the equilibrium price to rise from $350 to $400 and equilibrium quantity to decrease from 5000kg to 4000kg.