Explain how a glut in the orange market can be bad news for the producers of apples.
Explain how a glut in the orange market can be bad news for the producers of apples.
Homework Answers
A glut in the orange market implies a massive increase in the supply of the oranges due to more than anticipated production of oranges.
Given the demand for oranges, this massive increase in supply of oranges will lead to fall in price of oranges.
Oranges and apples are substitute good.
So, this fall in price of oranges will cause apple to become less desirable because their relative price now is greater compared to oranges.
As a result, consumers will buy less of relatively expensive apples and thus demand for apples will decrease.
As demand for apples will decrease, quantity sold by apple producers will also decrease leading to fall in total revenue and profit of apple producers.
Therefore, a glut in the orange market can be bad news for the producers of apples.
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Explain how a glut in the orange market can be bad news for the producers of apples.
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