Questions: 2. For this question, consider the market for lemons. a. Draw a typical supply and demand curve for this market. Be sure to label the equilibrium price and equilibrium quantity demanded/supplied. Denote these values with a (*) superscript. b. Now suppose that the price for oranges, a substitute for lemons, decreases. On the same graph as part (a), show the relevant changes, if any, to the following: Market Supply, Market Demand, equilibrium price, and equilibrium quantity demąnded/supplied. Use a single prime mark (') to denote new values. c. After the events in part (b), weather conditions specifically in lemon growing areas (and not in any complement or substitute growing areas) improve such that harvests are bountiful, and suppliers are able to supply more lemons at any given price. Show the results of this weather pattern on the same graph as you used in parts (a) and (b), denoting any changes from this part with a double prime (") mark. d. Considering what happened in parts (b) and (c), what do you expect to happen to the equilibrium price and quantity in the lemon market relative to the initial values? Briefly explain why.

2. For this question, consider the market for lemons. a. Draw a typical supply and demand curve for this market. Be sure to label the equilibrium price and equilibrium quantity demanded/supplied. Denote these values with a (*) superscript. b. Now suppose that the price for oranges, a substitute for lemons, decreases. On the same graph as part (a), show the relevant changes, if any, to the following: Market Supply, Market Demand, equilibrium price, and equilibrium quantity demąnded/supplied. Use a single prime mark (') to denote new values. c. After the events in part (b), weather conditions specifically in lemon growing areas (and not in any complement or substitute growing areas) improve such that harvests are bountiful, and suppliers are able to supply more lemons at any given price. Show the results of this weather pattern on the same graph as you used in parts (a) and (b), denoting any changes from this part with a double prime (") mark. d. Considering what happened in parts (b) and (c), what do you expect to happen to the equilibrium price and quantity in the lemon market relative to the initial values? Briefly explain why.
Transcript text: 2. For this question, consider the market for lemons. a. Draw a typical supply and demand curve for this market. Be sure to label the equilibrium price and equilibrium quantity demanded/supplied. Denote these values with a (*) superscript. b. Now suppose that the price for oranges, a substitute for lemons, decreases. On the same graph as part (a), show the relevant changes, if any, to the following: Market Supply, Market Demand, equilibrium price, and equilibrium quantity demąnded/supplied. Use a single prime mark (') to denote new values. c. After the events in part (b), weather conditions specifically in lemon growing areas (and not in any complement or substitute growing areas) improve such that harvests are bountiful, and suppliers are able to supply more lemons at any given price. Show the results of this weather pattern on the same graph as you used in parts (a) and (b), denoting any changes from this part with a double prime (") mark. d. Considering what happened in parts (b) and (c), what do you expect to happen to the equilibrium price and quantity in the lemon market relative to the initial values? Briefly explain why.
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Solution

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Solution Steps

Step 1: Draw the initial supply and demand curves

The initial supply and demand curves can be represented as:

  • Supply: \( S \)
  • Demand: \( D \)
  • Equilibrium price: \( P^* \)
  • Equilibrium quantity: \( Q^* \)
Step 2: Show the effect of a decrease in the price of oranges

When the price of oranges decreases, the demand for lemons decreases. This shifts the demand curve to the left:

  • New Demand: \( D' \)
  • New equilibrium price: \( P' \)
  • New equilibrium quantity: \( Q' \)
Step 3: Show the effect of improved weather conditions for lemons

Improved weather conditions increase the supply of lemons, shifting the supply curve to the right:

  • New Supply: \( S'' \)
  • New equilibrium price: \( P'' \)
  • New equilibrium quantity: \( Q'' \)

Final Answer

{"axisType": 3, "coordSystem": {"xmin": -10, "xmax": 10, "ymin": -10, "ymax": 10}, "commands": ["y = -x + 10", "y = x + 2", "y = -x + 8", "y = x + 4"], "latex_expressions": ["$D$", "$S$", "$D'$", "$S''$"]}

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