Question

Only one graph is needed.

(a) Draw a Supply Curve and the Demand Curve for the orange juice market. Label the supply S1 and the demand D1. Label the vertical axis P for Price and label the horizontal axis Q for Quantity of oranges. Label on the vertical axis the equilibrium price as P1. Label on the horizontal axis the equilibrium quantity as Q1.

Assume now that a new variety of orange trees is genetically created which allows orange groves to double their fruit production.

(h) Now, would the Equilibrium Price of oranges increase, decrease or stay the same?

If you said increase or decrease, clearly show that change on the graph above and label on the vertical axis the new equilibrium price as P2.

(i) Now, would the Equilibrium Quantity of oranges increase, decrease or stay the same?

If you said increase or decrease, clearly show that change on the graph above and label on the horizontal axis the new equilibrium quantity as Q2.

Answer 1

As the new variety of orange trees are introduced, the production and supply of orange juice increases. This would decrease the price from P1 to P2 and increase the quantity from Q1 to Q2

(h)

Equilibrium price will decrease from P1 to P2

(i)

Equilibrium quantity will increase from Q1 to Q2