Questions: Suppose the price of bananas increases and the demand for grapes increases. You determine that these goods must be substitutes. A nasty fungus sharply reduces the supply of sugar cane. What will happen to the equilibrium price and quantity of both sugar and coffee as a result of this event? 1.) Using the line drawing tool, illustrate the impact of the reduced supply of sugar cane on the market for sugar by either drawing a new supply or demand curve. Label the new curve either 'S2' or 'D2'. 2.) Using the point drawing tool, illustrate the new equilibrium in the sugar market. Label this point 'A'. Given that coffee and sugar are complements and that the previous graph illustrated how the nasty fungus led to an increase in the price of sugar, graph the following: 1.) Using the line drawing tool, illustrate the impact of the increase in the price of sugar on the market for coffee by either drawing a new supply or demand curve. Label the new curve either 'S2' or 'D2'. 2.) Using the point drawing tool, illustrate the new equilibrium in the coffee market. Label this point 'B'.

Suppose the price of bananas increases and the demand for grapes increases. You determine that these goods must be substitutes. A nasty fungus sharply reduces the supply of sugar cane. What will happen to the equilibrium price and quantity of both sugar and coffee as a result of this event? 1.) Using the line drawing tool, illustrate the impact of the reduced supply of sugar cane on the market for sugar by either drawing a new supply or demand curve. Label the new curve either 'S2' or 'D2'. 2.) Using the point drawing tool, illustrate the new equilibrium in the sugar market. Label this point 'A'. Given that coffee and sugar are complements and that the previous graph illustrated how the nasty fungus led to an increase in the price of sugar, graph the following: 1.) Using the line drawing tool, illustrate the impact of the increase in the price of sugar on the market for coffee by either drawing a new supply or demand curve. Label the new curve either 'S2' or 'D2'. 2.) Using the point drawing tool, illustrate the new equilibrium in the coffee market. Label this point 'B'.
Transcript text: Suppose the price of bananas increases and the demand for grapes increases. You determine that these goods must be substitutes A nasty fungus sharply reduces the supply of sugar cane. What will happen to the equilibrium price and quantity of both sugar and coffee as a result of this event? 1.) Using the line drawing tool, illustrate the impact of the reduced supply of sugar cane on the market for sugar by either drawing a new supply or demand curve. Label the new curve either ' $\mathrm{S}_{2}$ ' or ' $\mathrm{D}_{2}$ '. 2.) Using the point drawing tool, illustrate the new equilibrium in the sugar market. Label this point ' $A$ '. Given that coffee and sugar are complements and that the previous graph illustrated how the nasty fungus led to an increase in the price of sugar, graph the following: 1.) Using the line drawing tool, illustrate the impact of the increase in the price of sugar on the market for coffee by either drawing a new supply or demand curve. Label the new curve either ' $\mathrm{S}_{2}$ ' or ' $\mathrm{D}_{2}$ '. 2.) Using the point drawing tool, illustrate the new equilibrium in the coffee market. Label this point 'B'.
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Solution

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Solution Steps

Step 1: Effect of reduced sugar cane supply on the sugar market

A reduced supply of sugar cane means less sugar is produced. This shifts the supply curve for sugar to the left (S2 in the first graph). This indicates a lower quantity supplied at any given price.

Step 2: New equilibrium in the sugar market

The leftward shift of the supply curve results in a new equilibrium (Point A in the first graph) where the new supply curve (S2) intersects the original demand curve (D1). This new equilibrium reflects a higher price and lower quantity of sugar compared to the initial equilibrium.

Step 3: Effect of increased sugar price on the coffee market

Sugar and coffee are complements. When the price of sugar increases, the demand for coffee decreases. This is shown by a leftward shift of the demand curve for coffee (D2 in the second graph).

Final Answer

The fungus on sugar cane causes the supply of sugar to decrease, leading to a higher sugar price and lower sugar quantity. Since coffee and sugar are complements, the higher sugar price causes the demand for coffee to decrease, resulting in a lower coffee price and lower coffee quantity (Point B in the second graph).

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