For each of the following scenarios, show how each market is affected. Label the initial equilibrium price P1, and the original quantity Q1. Label the new equilibrium price P2 and the quantity Q2.Due to perfect weather conditions, there is a larger than expected crop of oranges this year. The weather conditions do not affect the crop of tangerines. Citrus juice is made from either oranges or tangerines and consumers have no preference for one or the other. Lastly, citrus juice and oatmeal are complements and oats are required to make oatmeal. a. Market for oranges, b. Market for citrus juice, c. Market for tangerines, d. Market for oatmeal, e. Market for oats.

See answers below; in details.

Explanation:

A rephrase of the question:

Consider the following conditions and describe what happens to equilibrium price and quantity in each of the listed markets.

(A) MARKET FOR ORANGES

- There are better (or perfect) weather conditions this year

- This will bring about a larger harvest of oranges

- Q2 > Q1

- P2 < P1 , owing to the law of demand and supply. Truly, in this case, 'all other things' such as consumer taste are constant and the weather conditions didn't increase or reduce the turnout of tangerines.

(B) MARKET FOR CITRUS JUICE

- The information given (where consumer taste is constant) shows that the law of rationality applies. Customers/Consumers are rational. They'll go for the cheaper type of citrus juice and this price depends on the magnitude of raw materials such as the tangerines or oranges themselves.

- Given a higher output of oranges, the market for citrus juice will boom. Hence Q2 of citrus juice > Q1 of citrus juice

- P2 of citrus juice < P1 of citrus juice

(C) MARKET FOR TANGERINES

- The information given about absence of consumer preference shows that oranges & tangerines are perfect substitutes.

- Substitution here means that one can perfectly replace the other and/or both fruits give the same value to end users.

- This means that there'll be less purchase of tangerines (either raw or juice) owing to the increased availability of oranges. Keep in mind that the quantity of tangerines harvested or produced did not fall in the year.

- So Q2 = Q1

- There is less purchase of tangerines this year and tangerine is a perishable good (it spoils or loses value with time) so, to encourage consumer purchase, producers in the market for tangerine will reduce the price. So P2 < P1

(D) MARKET FOR OATMEAL  &  (E) MARKET FOR OATS

- Citrus juice and oatmeal are complements. This means that they go together; in consumption. Just like the consumption of PMS is complementary to the consumption of car tires.

- The markets for oats and oatmeal will boom because the market for citrus juice is booming.

- As people consume more citrus juice, they'll purchase and consume more oatmeal.

- The output of oats under this weather condition isn't given so, we'll assume it to be constant.

- So the quantity of oats is constant but the price of oats will rise because its demand will rise or has risen. Q2 = Q1 ;   P2 > P1

- In the market for oatmeal, quantity will increase and price will rise, due to higher demand.  Q2 > Q1 ;   P2 > P1

1. c

2. b

3. a

4. c

5. a

6. b

7. c

8. c

9.b

10. d

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