Question

NEED ASAP PLZ

Hops are used in the production of beer. Suppose that bad weather last year destroyed many of the bushes that produce hops. Use a neat and fully labelled demand and supply curve diagram to show how the bad weather affected the equilibrium price and quantity of hops last year. describe how you would expect the equilibrium price and quantity of hops to change in 10 years, and explain the reasoning for your answer.

Answer 1

When bushes producing hops are destroyed, lowering supply of hops, causing price of hops to rise. Higher price of hops will increase input cost to beer firms who will decrease production, lowering the supply of beer, shifting its supply curve to left. Price of beer will rise and quantity of beer will fall.

In the long run, however, beer firms will have more alternative inputs to switch to (in case supply of hops does not get restored), so they will increase production and supply will rise, restoring initial equilibrium.

In following graph, D0 & S0 are initial demand and supply curves intersecting at point A with initial price P0 and quantity Q0. As S0 shifts left to S1, it intersects D0 at point B with higher price P1 and lower quantity Q1.