Fig. 1 shows the market for imported oranges. A disease damages orchards in several exporting countries, shifting supply from S1 to S2. Demand from consumer...
Question 1 Report
Fig. 1 shows the market for imported oranges. A disease damages orchards in several exporting countries, shifting supply from S1 to S2. Demand from consumers remains D1.
(a) State the direction of the supply shift. [1]
(b) Explain the likely effect on the equilibrium price and equilibrium quantity. [2]
(c) What is a likely effect on the revenue of an orange firm if it sells fewer oranges? [2]
Answer Details
(a) Supply shifts leftward (inward) from S1 to S2. The disease reduces the number of oranges available from exporting countries. [1]
(b) With demand unchanged and supply lower, equilibrium price rises. Equilibrium quantity falls. [2]
(c) Revenue is:
\[\text{revenue}=\text{price}\times\text{quantity sold}\]
Revenue may fall because the firm sells fewer oranges. However, it could rise if the higher price more than offsets the fall in quantity sold. A fall in quantity alone does not prove that revenue must fall. [2]
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