Question

Assuming a normal market, with a positively sloped supply and negatively sloped demand, which is initially in equilibrium. Given the situation stated below, fill in the blanks matching the effect as either: increase, decrease, no change or indeterminate (cannot determine).

Market for ORANGES

A Ministry of Health study proves conclusively that moderately large quantities of orange juice help prevent the common cold, and severe frost occurs in south Florida. As a result,

Demand will ___________

Supply will ____________

Equilibrium price will __________
Equilibrium quantity will _________

Answer 1

• Demand will increase.
• Supply will decrease
• Equilibrium price will Increase
• Equilibrium quantity will - cannot determine.

Explanation: The health ministry report would result in an increase in demand as people would like to consume higher quantity at all given price levels. The frost would result in a fall in the supply. So, the demand curve would shift right and the supply curve would shift left. Therefore, the price will surely increase; however there is no clear direction in which quantity will change.