InterviewSolution
Saved Bookmarks
InterviewSolution
| 1. |
On 19^(th) December, 2013, the following news item was printed in the Economic Times: "Household in Southern India prefer to eat organges for breakfast as banana plantations in Kerala have been destroyed and price of apples and grapes have also risen". Use a diagram and economic theory to analyse the impact of the rise in price of apples and grapes on the market of oranges. |
| Answer» <html><body><p></p><a href="https://interviewquestions.tuteehub.com/tag/solution-25781" style="font-weight:bold;" target="_blank" title="Click to know more about SOLUTION">SOLUTION</a> :<img src="https://d10lpgp6xz60nq.cloudfront.net/physics_images/SG_MIC_ECO_PW_S01_051_S01.png" width="80%"/> <br/> When the price of apples and grapes rises, consumers will substitute with these fruits with the relatively cheaper oranges. Thus, demand for oranges will increase and the demand curve <a href="https://interviewquestions.tuteehub.com/tag/shifts-1205400" style="font-weight:bold;" target="_blank" title="Click to know more about SHIFTS">SHIFTS</a> rightwards to D'D'. <br/> At the prevailing market price (OP), there was an excess demand of AE. In this situation, buyers would <a href="https://interviewquestions.tuteehub.com/tag/react-613674" style="font-weight:bold;" target="_blank" title="Click to know more about REACT">REACT</a> by competing with each other and raise the market price. As market price rises, quantity demanded of oranges contracts and the quantity supplied expands. This process will continued till a new equilibrium price is reached at `OP_(<a href="https://interviewquestions.tuteehub.com/tag/1-256655" style="font-weight:bold;" target="_blank" title="Click to know more about 1">1</a>)`, where market demand is equal to market demand is equal to market <a href="https://interviewquestions.tuteehub.com/tag/supply-1235254" style="font-weight:bold;" target="_blank" title="Click to know more about SUPPLY">SUPPLY</a>. `OP_(1)` is higher than the old price of oranges. <br/> Therefore, the equilibrium price of oranges increases and the equilibrium quantity also increases when the price of apples and grapes rises in Southern India.</body></html> | |