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The following headline appeared in the Hindustan Times on 2 August 2014 : ''Crop damaged in Himachal sent tomato prices roaring in Delhi.'' Use a diagram and economic theory to analyse the statement. Or On 19 December 2013, the following news item was item was printed in the Economic Times : Households in Southern India prefer to eat oranges 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 imapact of the rise in price of apples and grapes on the market or oranges,

Answer» <html><body><p></p>Solution :As the toamto crop was damaged in Himachal, the production and supply of tomatoes would fall. <br/> As a result the supply curve would shilft to its left. <br/> In the adjoining figure, demand curve DD and supply curve SS <br/> equilibrium point is E <br/> equilibrium price is OP <br/> equilibrium <a href="https://interviewquestions.tuteehub.com/tag/quantity-1174212" style="font-weight:bold;" target="_blank" title="Click to know more about QUANTITY">QUANTITY</a> is OM <br/> <img src="https://d10lpgp6xz60nq.cloudfront.net/physics_images/MIC_ECO_XI_U04_C11_E01_027_S01.png" width="80%"/> <br/> Observations <br/> (i) Due to damge of tomato crop, supply of the commodity <a href="https://interviewquestions.tuteehub.com/tag/decreases-946143" style="font-weight:bold;" target="_blank" title="Click to know more about DECREASES">DECREASES</a> and the supply curve shifts to left from SS to `S_(<a href="https://interviewquestions.tuteehub.com/tag/2-283658" style="font-weight:bold;" target="_blank" title="Click to know more about 2">2</a>)S_(2).` <br/> (ii) This causes excess demand TE. <br/> (iii) This causes competition among buyers which pushes the price upwards. <br/> (iv) Due to rise in price, the demand contracts from point E to point `E_(2)` and supply extends from point T to point `E_(2)`. <br/> (v) Market demand and market supply become equal again at point `E_(2)` which corresponds to a higher euilibrium price `OP_(2)` and lower equilibrium quantity `OM_(2)`. <br/> This explains how prices of tomatoes rose in Delhi due to damage of tomato crop in Himachal. <br/> Or <br/> Households in Southern India prefer to but oranges becuase there is shorage of bananas (as banana plantations in Kerala have been destroyed) and price of apples and <a href="https://interviewquestions.tuteehub.com/tag/grapes-1011007" style="font-weight:bold;" target="_blank" title="Click to know more about GRAPES">GRAPES</a> have also gone up. <br/> In the adjoining figure, demand curve DD and the supply curve <br/> SS of oranges intersect each other at point E. <br/> <img src="https://d10lpgp6xz60nq.cloudfront.net/physics_images/MIC_ECO_XI_U04_C11_E01_027_S02.png" width="80%"/> <br/> Accordigly, <br/> equilibrium point is E <br/> equilibrium price is OP <br/> equilibrium quantity is OM, <br/> Observations <br/> (i) Due to increase in price of substitute fruits, there is increase in demand of oranges and demand curve shifts to <a href="https://interviewquestions.tuteehub.com/tag/right-1188951" style="font-weight:bold;" target="_blank" title="Click to know more about RIGHT">RIGHT</a> from DD to `D_(1)D_(1)`. <br/> (ii) This cuses excess demand EN. <br/> (iii) Due to increase in demand, there is competition among buyers, which pushes the price upwards. <br/> (iv) Due to increase in price, supply extends from point E to point `E_(1)` and demand contracts from point N to point `E_(1)`. <br/> (v) Market demand and market supply become equal again at point `E_(1)` which corresponds to a higher equilibrium price `OP_(1)` and higher equilibrium quantity `OM_(1)`. <br/> `OP_(1)` is higher than the old price of oranges. This explains the impact of rise in price of apples and grapes on market of oranges that there is increase in equilibrium price and equilibrium qt. of oranges.</body></html>


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