Question

For each of the following scenarios, show how each market is affected. Label the initial equilibrium price P1, and the original quantity Q1. Label the new equilibrium price P2 and the quantity Q2.

Due to perfect weather conditions, there is a larger than expected crop of oranges this year. The weather conditions do not affect the crop of tangerines. Citrus juice is made from either oranges or tangerines and consumers have no preference for one or the other. Lastly, citrus juice and oatmeal are complements and oats are required to make oatmeal.

A . Market for oranges

B. Market for citrus juice

C. Market for tangerines

D. Market for oatmeal

E. Market for oats

Answer 1

Following changes occur:

• Supply of oranges increases
• Supply of citrus juice increases, as price of oranges, an input, falls
• Demand for tangerine falls, as producers switch to using oranges instead of tangerines
• Demand for oatmeal increases as fall in price of citrus juice increases demand for both juice and oatmeal, a complement
• Demand for oats increases, as it is an input to producing more oatmeal, in order to meet growing demand of oatmeal

Graphical analysis of the same is below;