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Suppose that high temperatures and a lack of rain in the Pacific Northwest cause a shortage of cranberries, leading to a rise in cranberry prices. How would this affect the equilibrium price and quantity for other products that use cranberries, such as cranberry sauce and cranberry juice?

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Parrain

Answer:

  • Equilibrium price will rise
  • Equilibrium quantity will fall

Explanation:

Cranberries are the main inputs into products such as Cranberry sauce and Cranberry juice that use cranberries. Cranberry prices will therefore have a direct effect on the prices of these other products.

In this scenario, cranberry prices increase which means that inputs into cranberry products become more expensive thus pushing up the price of production. This will force the producers to produce less given the high cost of production.

Lower production equals lower supply which would push the Supply Curve to the left. The new equilibrium, will result in a higher price and a lower quantity demanded.

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