Question

Idaho ships substantial quantities of potatoes throughout the United States. Use supply and demand curves to explain the potential effects of a major potato blight in Idaho that severely curtails the production of potatoes in the state on each of the following (i.e., draw the relevant supply/demand curves as well as write the answer):

A) the price of potatoes in New York City

B) The quantity of potatoes consumed in Los Angeles

C) What will happen to the fortunes of Maine potato growers? (Maine potatoes are a substitute for Idaho potatoes)

D) What will happen to the price of French Fries at McDonalds?

E) What happens to the consumption of onion rings (assume onion rings are a reasonable substitute for French Fries)?

Answer 1

A and B.Due to the potato blight,the supply of potatoes falls.When supply falls the supply curve shifts to the left causing price to rise(in New York) and demand to fall(in LA).

C.People tend to substitute relatively expensive good(Idaho potatoes) with relatively cheaper good(Maine potatoes).Due to this substitution,the demand for maine potatoes rise causing the price and quantity to rise as well.

D.Since french fries are made of potatoes and the price of potatoes(Idaho's)has risen,the supply of french fries would fall because it would now be more expensive to produce french fries.Price would rise and quantity would fall.

E.Onion rings are substitutes and therefore the demand for onion rings would rise.

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