Consider the following events: scientists reveal that consumption of oranges decreases the risk of diabetes, and at the same time, farmers use a new fertilizer that makes orange trees more productive. Illustrate (using supply-and-demand diagrams) and explain what effect these changes have on the equilibrium price and quantity of oranges.
What will be an ideal response?
Answer: The news of the increased health benefits from consuming oranges will increase the demand for oranges, increasing both the equilibrium price and quantity. If farmers use a new fertilizer that makes orange trees more productive, the supply of oranges will increase, leading to a fall in the equilibrium price but a rise in the equilibrium quantity. If both occur at the same time, the equilibrium quantity will definitely rise, but the effect on equilibrium price will be ambiguous.
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What will be an ideal response?
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