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Imagine you are an analyst following the market for oranges. You notice that the price of...

Imagine you are an analyst following the market for oranges. You notice that the price of oranges increases by a large amount. What will happen in the short term to the quantity of oranges demanded and supplied?

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Answer #1

Two seperate laws will be used for this answer.

1st is the Law of demand.

2nd is the law of supply

Effect on demand of orenges--------The demand for orenges will decrease because of the increae in prices of orenges. This happens because the consumer will now shift to some other product or not buy orenges due to limited income available.

Effect on supply of orenges-------The supply of orenges will increase as the price of orenges increase. The higher the prices the higher will be the demand bacause in case of high prices the margins of supplier will also be high, hence more new suppliers will enter market and supply will increase.

Assume in both law of demand and law of supply the ceterus perebus assumption is used that is to say "other things affecting demand and supply remains same".

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