Question

Latisha likes apple juice and orange juice equally well, however she normally drinks orange juice with her breakfast each day. Apple juice is packaged in bottles and orange juice is packaged in cartons. There is a freeze that destroys half of the orange crop this season. Explain the impact of the freeze on the markets for orange juice, apple juice, bottles, and cartons. For each market, make sure you include the following in your answer: Supply or Demand Shift Equilibrium Price and Quantity Change The reason for the change

Answer 1

Answer:

The market for orange juice- decline in supply, leftward shift in supply curve, increase in price, fall in quantity, due to reduction in supply of input and increase in input price.

The market for apple juice- increase in demand, rightward shift in demand curve, increase in price and quantity, because it's a substitute for orange juice.

The market for bottles- increase in demand, rightward shift in demand curve, increase in price and quantity, because of increase in demand for apple juice.

The market for cartons- decline in demand, leftward shift in demand curve, fall in price and quantity, because of reduction in quantity of orange juice.

Explanation:

In case half of the crop of oranges is destroyed, the supply of oranges will decline, shifting the supply curve to the left. The price of oranges will increase. Oranges serve as input for orange juice. So the supply of orange juice will be reduced as well. This will lead to leftward shift in the supply curve, further leading to a increase in price and reduction in quantity.

Latisha likes apple juice equally as orange juice. This indicates that both are substitutes. So when price of orange juice people will prefer apple juice. The demand for apple juice will increase moving the demand curve to the right. As a result, the price and quantity will increase.

Since apple juice is packed in bottles, with increase in quantity of apple juice, the demand for bottles will also increase. This will shift the demand curve to the right increasing the price and quantity.

Cartons are used to pack orange juice. So when quantity of orange juice falls, the demand for cartons also gets reduced. There will be a leftward shift in the demand curve. This will lead to fall in price and quantity.