Question

Answer this question using the following graph: Price ($) 3. 100,000 Pineapples/Month (a) Assuming a perfectly competitive market for pineapples, with supply curve S and demand curve D, explain how the market price and quantity of pineapples are determined. (b) If consumers considered pineapples and cantaloupes to be good substitutes, explain how an increase in the price of cantaloupes would affect the market for pineapples. (c) If the government paid a $1 per unit subsidy to pineapple growers, explain how the govern- ment subsidy would affect the pineapple market. (d) How would the consumer surplus be affected by this government subsidy? (e) Explain how an increase in the wages paid to the workers who harvest and process pineapples will affect the pineapple market.

Answer 1

- (a) In a perfectly competitine market individual firms are puice takers and industry is the fuce maker que fuice is determined my intersection of market supply & demand cwne! the market demand and supply curne are determined by consumers preferences and seller's ruhaniour In the graph Price of pineappler = $6 . aty of pineappler seld = 100,000 - (b) of Prece of Cantalousie tut a wa dawa a consumer will nour prefer lineapples as they are cheapes & the goods are perfect consubstitutes : Demand for fineapples will shift to the right Price of Purceffles y increase aty of Pineapples increase a scanned with CamScanner

- Sulesidy log cool, Due to Sulisedy because cost supply will shift to the right of production is now lower. Is Price sellers receine PB Price buyeur pay . aty produced andre rise Consuma surplus would increase (by the shaded area as whore subsidy - AABC Alic Bcs after subsidy AADE. Scanned with CS CamScanner

(e) 8 mager haid to workers who harnect fineapples increase This will increase production costs. supply come mil shifts to the left s aty will fall & Pence will use Scanned with Camscanner

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