Suppose that in 2021 price of diesel increases, increasing the transportation costs for banana farmers in...
Suppose that in 2021 price of diesel increases, increasing the transportation costs for banana farmers in getting their bananas to market. Explain why there would be any movement in the demand or supply curve and any change in the equilibrium price and quantity for bananas after the increase in the price of diesel.
b)Suppose that in 2022 the price of bananas increases and the amount of bananas bought and sold increases. What must have happened to the demand or supply of bananas for this to have occurred?
Homework Answers
In following graphs, D0 and S0 are initial demand and supply curves intersecting at point A with equilibrium price P0 and quantity Q0.
(a)
Higher transportation cost will increase the total cost of business, which will decrease supply, shifting supply curve leftward, increasing price and decreasing quantity. There is no movement along demand or supply curve.
When transport cost rises, S0 shifts left to S1, intersecting S0 at point B with higher price P1 and lower quantity Q1.
(b)
When both price and quantity increase, it means demand has increased, shifting demand curve rightward.
In following graph, D0 shifts right to D1, intersecting S0 at point B with higher price P1 and higher quantity Q1.
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