If the supply curve shifts and the demand curve does not shift,

A) The old and new price-quantity combinations lie on the original demand curve.

B) The old and new price-quantity combinations lie on the new supply curve.

C) The old and new price-quantity combinations lie on the old supply curve.

D) The new price-quantity combination lies half way between the old and the new supply curves.

At a competitive equilibrium, price, the quantity demanded equals the quantity supplied.

A)True

B)False

When supply curve shifts, price and quantity move along demand

curve Price

Demand Curve

New Supply Curve

Old SupplyCurve

Old PriceQuantityCombination

New PriceQuantity Combination

Quantity

The demand curve slopes up and the supply curve slopes down. If the supply curve shifts and

demand curve does not change

A) Prices and quantities move in the same direction as each other.

B) Prices and quantities move in opposite directions from each other.

C) If supply curve shifts up prices and quantities move in same direction. If supply curve shifts down, they move in opposite directions.

With shifting supply curve, prices and quantities move in opposite

directions. Price

Demand Curve

New Supply Curve

Old SupplyCurve

Old PriceQuantityCombination

New PriceQuantity Combination

Quantity

If the demand curve shifts and the supply curve does not shift,

A) The old and new price-quantity combinations lie on the original demand curve.

B) The old and new price-quantity combinations lie on the new demand curve.

C) The old and new price-quantity combinations lie on the original supply curve.

D) The new price-quantity combination lies half way between the original and the new demand curves.

When demand curve shifts, price and quantity move along supply

curve Price

New Demand Curve

Supply Curve

New PriceQuantity Combination

QuantityOld Price Quantity Combination

The demand curve slopes down and supply curve slopes up.

If the demand curve shifts and supply curve does not change:

A) Prices and quantities move in the same direction as each other.

B) Prices and quantities move in opposite directions from each other.

C) If demand curve shifts up prices and quantities move in same direction. If demand curve shifts down, they move in opposite directions.

When demand curve shifts, price and quantity move in same

direction Price

New Demand Curve

Supply Curve

New PriceQuantity Combination

QuantityOld Price Quantity Combination

If the supply curve is horizontal and the demand curve shifts down, what

happens to equilibrium price and quantity?

1. Price and Quantity fall.

2. Price falls, quantity stays same.

3. Quantity falls, price stays same.

4. Price falls, quantity rises.

5. Price rises, quantity falls.

Don’t memorize! Draw the graph.

Demand curve shifts down.

Price stays constant.Quantity falls.

Q

P

Application: The California Citrus Frost of January, 2007

California orange industry

• California grows about 95% of the U.S. navel orange crop. These are the main oranges for eating.

• Florida oranges are mainly for juice.

• Oranges are imported from South America and Australia, but only in the U.S. summer.

Estimated crop loss from frost

• About 30% of this year’s crop was harvested at the time of the frost (Jan 12).

• About 2/3 of the remaining oranges will be lost.

• Total loss is 2/3 x 70%=46% of California crop.

• This is 46% x .95 = 44% of the total U.S. crop.

What happened to price

• USDA reports that wholesale price of navel oranges increased from $16 per carton to $35 per carton.

• That is a price increase of $35-$16=$19.

• As a percentage price increase that is

(19/16)x100= 119%

Price elasticity of demand for navel oranges

• Quantity produced fell by 44%.

• Price rose by 119%.

• Price elasticity is: percent change in quantity divided by percent change in price.

• Thus price elasticity is about

-47 / 119 = -.37

Supply and demand for navels

$35

$16

66 M31 m

Big loss to California?

• L.A. Times reports that “California’s $1.1 billion orange crop is severely damaged.”

• Times reports that “Damage to all fruit and vegetable crops” will be more than $700 million.

• Gov Schwarzenegger requests federal disaster aid for growers and related business because frost has “destroyed nearly $1 billion worth of California citrus.

Lets take another look

• Estimated navel orange crop for 2007 was 66 million cartons.

• Price before frost was $16 per carton.• Revenue if no frost 66 x 16 =1.060 billion.• About half of the California crop was lost and price

went to $35 per carton.• Value of crop after the frost 33 x 35 =1.160 billion. • This is a loss?• Looks more like a $100 million gain.

Who gains who loses?

• Gainers: – Growers who lost less than 55% of their crop and sold at the

new price. – Wholesalers who bought before the frost and can now sell at

post-frost prices.

• Losers: – Growers who lost more than 55% of their crop.– Pickers who are out of work.– U.S. consumers who must pay more money for fewer

oranges.

• Why should we be taxing U.S. consumers to pay growers, when consumers, not growers, are the big losers?

See You Friday