Question

In the US market, dried apples and dried cranberries are product substitutes, and the production of both goods is sensitive to weather events. Apple production is negatively affected by ill-timed rains in the fall in major apple producing regions (especially Washington). Cranberry production is negatively affected by sustained cold weather events in cranberry producing states (especially the New England states). We observe that the equilibrium price of apples has risen and the equilibrium quantity of cranberries has risen. What could be responsible for this pattern – rain in Washington, or extended cold temperatures in New England? Illustrate with two Supply and Demand graphs (one for each commodity) and explain your answer.

Answer 1