Monday, August 31, 2009

Test your understanding of economics in the news: Is this a change in supply or a change in demand?

In the January 3, 2008 article "Freak Florida Freeze Drives Up Orange Juice Prices," Dan Shapley explains that when freezing temperatures damage Florida orange groves, the price of orange juice increases.

Is the increase in the price of orange juice caused by (a) an increase in the supply of orange juice, (b) a decrease in the supply of orange juice, (c) an increase in the demand for orange juice, or (d) a decrease in the demand for orange juice?

Read the article below and then illustrate this price change with a graph that shows the initial positions of the supply and demand for orange juice and the new positions of the supply and demand curves. (Hint: Only one of the curves has shifted.) There is a link at the bottom of this posting that provides the answer.
The threat of a frost damaging enough to devastate Florida's citrus crop sent the price of orange juice soaring on the commodities market Wednesday. Strawberry growers were also particularly worried, as the short growing season would end before a frost-damaged crop might recover, according to The St. Petersburg Times.

The impact of the frost was still being assessed Thursday.

The Arctic blast threatened to bring record-low temperatures, or at least the lowest temperatures seen in decades, to parts of Florida, the nation's biggest fruit producer. By this weekend, however, it will be sunny and 70 degrees.

CLICK HERE FOR THE ANSWER.

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