Question

2. Typically, goods that are in high demand have a high market price. However, some goods that are in high demand during their peak season have lower prices as compared to their out-of-season price. Use your knowledge of supply & demand to explain the lower equilibrium price of cherries sold in the summer (their peak season), as compared to their price during the rest of the year (say, in the winter). Show it graphically and briefly explain. (3 pts.) Hint: You should draw two demand and two supply curves in the same graph (for winter and summer). Start with the winter to show your initial demand and initial supply of cherries. Then, show the changes that occur in the summer months and prove that the price of cherries in the summer is lower than in the winter.  

Answer 1

In the graph, D curve denotes demand of cherries in winter. It shifts to D' in summer as the quantity demanded increases. S is the supply curve in winter. Due to the increase in the quantity demanded, initially the price increases. This leads to an increase in the quantity supplied. Hence, the price curve shifts to S'. Now the inverse relationship between price and supply applies. Due to an increase in the quantity supplied, there is a decrease in the price. Hence, the equilibrium price gets lower in summer than in winter.