Question

Remember: Changes in supply determinants shift supply, and changes in demand determinants shift demand. We say that a shift of supply does not cause a shift of demand, and vice-versa, because it is the adjustment of the market price (via the elimination of temporary shortages and surpluses) that allows the market to arrive at an equilibrium price that causes a stable condition where quantity supplied = quantity demanded. Please analyze the following scenario with a graph, accompanied by a complete analysis in paragraph form, to address the following scenario: Use a standard supply and demand analysis to predict the effects of the following scenario in the asparagus market. Assume that a promotional campaign is introduced into the asparagus market. The campaign successfully raises consumer interest in asparagus consumption. Consumers are pleasantly surprised to discover that eating asparagus helps the body generate proper blood formation and triggers a healthy metabolism of the body’s immune system.

Predict whether this consumer response affects the supply or demand for asparagus. What is the predicted direction of change? How does this change affect the equilibrium price and quantity of asparagus? Why? Defend your answer.

Asparagus production is adversely affected by Fusarium root rust. Suppose agronomic researchers using traditional cross-breeding techniques create an asparagus variety that is naturally resistant to the rust disease, and asparagus crop yields noticeably increase.

Predict whether this production response affects the supply or demand for asparagus. What is the predicted direction of change? How does this change affect the equilibrium price and quantity of asparagus? Why? Defend your answer.

Answer 1

a. With an increase in the consumption of asparagus, the demand curve of asparagus market would be affected. This is because of a favourable change in the consumer's taste and preferences due to discovery of the new vital information of eating asparagus. The demand curve would shift out to right from D to D' as more people would start eating asparagus and the existing users would increase their consumption. With the supply curve as it is, the equilibrium price and the quantity both would increase.

b. As the yield of the crop increases due to the cross breeding, the supply curve would be affected. Since more asparagus can be produced so the supply curve would shift out to the right from S1 to S. the equilibrium price would decrease and the quantity would increase.