Question

Consider the following scenario: Lettuce and spinach are substitutes. Lettuce and tomatoes are complements. Lettuce is a normal good. During the winter, about 20% of the lettuce crop was destroyed by flooding.
a. What is the effect of the flooding in the lettuce market. Explain your reasoning using a supply/demand diagram. Carefully show any shifts and/or movements along the curves. How do the equilibrium quantity and price change?

b. What is the effect of the flooding in the spinach market. Explain your reasoning using a supply/demand diagram. Carefully show any shifts and/or movements along the curves. How do the equilibrium quantity and price change?

c. What is the effect of the flooding in the tomato market. Explain your reasoning using a supply/demand diagram. Carefully show any shifts and/or movements along the curves. How do the equilibrium quantity and price change?

d. If at the same time that part of the lettuce crop was destroyed, consumer income also decreased, then, ceteris paribus, what would happen in the market for lettuce? Explain your reasoning using a supply/demand diagram. Carefully show any shifts and/or movements along the curves.

Answer 1

Answer:

a. Effect of flooding in the lettuce market will result to increase in equilibrium price & decrease in demand.

b. Effect of flooding in the spinach market will result to decrease in equilibrium price & increase in demand

c. Effect of flooding in the tomato market will result to no change in equilibrium price & demand

d. Effect of flooding if the customer income decrease might lead to no change in equilibrium price but a decrease in supply of lettuce. This is because Vendors might consider the decrease in the consumer income

Explanation:

The attachment contains diagram of supply/demand curves