1 What is the likely effect on equilibrium price and quantit

1. What is the likely effect on equilibrium price and quantity if orange growers experience an extended period of bad weather? Which curve(s) is (are) affected by bad weather (supply, demand, both, or neither)? Your answer must indicate the effect of that bad weather on the equilibrium price of oranges (did the price go up, go down, or remain unchanged?). Your answer must also indicate the effect on equilibrium quantity (did it increase, decrease, or remain unchanged?).

2. What is the likely effect on the equilibrium price and quantity of corn if the government requires ethanol (a corn byproduct) to be added to all gasoline to reduce emissions? This question is separate from and independent of the first question. Which curve(s) is (are) affected by this new government regulation (supply, demand, both, or neither)? Your answer must indicate the effect of that government regulation on the equilibrium price of corn (did the price go up, go down, or remain unchanged?). Your answer must also indicate the effect on equilibrium quantity (did it increase, decrease, or remain unchanged?).

Solution

Ans 1=An extended period of bad weather would reduce supply, hence causing a leftward shift of the supply curve. The poor weather will reduce yields, reducing the quantum offered for sale to the market at each possible price. Because consumers still wish to purchase the same quantity at the current price, the decrease in supply will create a shortage.   The increase in price reduces the quantity consumers wish to purchase.

Ans 2=Requiring the addition of ethanol would increase the demand for corn, hence causing a rightward shift of the demand curve. The quantum demanded by ethanol producers would be added to the amount demanded by other corn consumers and result in a shortage at the current price. As corn producers still wish to produce the same amount at the current price, there will be a shortage unless the price changes.   The increase in price increases the amount produced and offered for sale.