Answer to Question #318254 in Microeconomics for khosie

Question

The population in country C decreases, due to a lower birth rate. At the same time, there is an increase in the cost of fertilizer, which is used to grow vegetables. Explain how the market for vegetables will be affected by these changes. Clearly indicate how the equilibrium price and equilibrium quantity will be affected by these changes. Make use of a combination of diagrams and verbal explanation to explain your answer. Note that your diagrams should be properly annotated and that marks will be deducted for any missing labels on your diagram

Answer 1

A decrease in population leads to a decrease in demand. An increase in the cost of fertilizer leads to the high cost of production for the vegetables thus resulting in a decrease in the supply of vegetables. For any quantity, consumers place a higher value, and producers have a higher price to supply vegetables. Therefore the price will increase. Increase in production cost will cause the production at a smaller quantity at each price, thus shifting the supply curve to the left. Therefore the effect on the equilibrium price and equilibrium quantity, depending on the vegetable output on the relative size of the two changes.