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Show, using a supply & demand graph, the effect on the equilibrium price and quantity of...

Show, using a supply & demand graph, the effect on the equilibrium price and quantity of the good in question of the following events. Assume markets are initially in equilibrium. These are qualitative answers. An original and new market equilibrium on the graph is needed. Show that clearly.

The market for Apples is initially in equilibrium. Suppose the price of Pears, a substitute for Apples, declines while at the same time more Apple Orchards are opened, so more firms enter the market. Show on a supply and demand graph the change in the equilibrium price and quantity of Apples if this occurs. Assume the change in supply is greater than the change in demand for this question.

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Answer #1

Apples and pears are substitutes. It is vivid that there is positive relationship in price and demand. Fall in price of one, decrease the demand of other good. Here, price of peers fall due to that demand of apple declines and shift leftwards from the equilibrium demand. At the same time, many of apple orchards opened. Therefore, supply of apples increase and supply curve shift rightwards. Now, apple demand is less than the supply of apples. Due to that price of apples have fall from p to p1 and quantity of apples increase from Q to Q1.

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