Wednesday, January 6, 2010

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

In the January 6, 2010 article "Cold grips much of US, Fla. races to save crops," Associated Press writer Melissa Nelson reports that freezing temperatures in Florida might destroy "millions of dollars' worth of strawberries and other crops."

Using the ceteris paribus assumption that ignores other potential changes, what is the likely effect on the market for strawberries if the freeze destroys the ones grown in Florida.

Is this change in the strawberry market (a) an increase in the supply of strawberries, (b) a decrease in the supply of strawberries, (c) an increase in the demand for strawberries, or (d) a decrease in the demand for strawberries? Will the equilibrium price of strawberries increase or decrease as a result of the damage from cold temperatures?

Read the article below and then illustrate this price change with a graph that shows the initial positions of the supply and demand for strawberries and the new positions of the supply and demand curves. (Hint: Only one of the curves shifts.) There is a link at the bottom that provides the answer.
PENSACOLA, Fla. – A stubborn cold wave locked freezing temperatures in place across the central and eastern U.S. Wednesday as far south as Florida, where farmers worked to salvage millions of dollars' worth of strawberries and other crops.

Arctic air was expected to hover through the weekend. In a rare turn for the South, forecasters warned that snow and ice were possible Thursday from South Carolina to Louisiana and wind chills in the region could get down to near zero at night.

In central and south Florida, farmers were trying to salvage citrus and vegetable crops by spraying them in protective layers of ice and covering them in plastic. Florida Gov. Charlie Crist signed an executive order Wednesday that gave the state's Division of Emergency Management and other agencies the authority to provide farmers with assistance.


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