Question

2. a. An early drought has severely harmed the olive oil harvests in Italy (olive market), draw a graph for this

2. b. Without drawing a diagram, how would this then affect the olive oil market? Why?

2. c. There has been an improvement in production technology in the textile industry (textile market), draw a graph for this

Answer 1

b.

This increases price and decreases quantity of olive oil.

This is so because the new equilibrium (E1) is on the left of the initial equilibrium (E0). The shorter supply creates pressure on quantity and price both.