Consider the market for orange juice. In this market, the supply curve is given by QS =
Question:
Consider the market for orange juice. In this market, the supply curve is given by QS = 100PJ −20PO and the demand curve is given by QD = 1000−150PJ +100PC, where J denotes orange juice, O denotes Orange, and C denotes coffee.
1)Assume that PO = 10 and Pc = 8. Calculate the equilibrium price and quantity in the Orange juice market. (1 mark)
2)Suppose that a poor harvest season raises the price of oranges to Po = 15
a)Is it possible to reach a market equilibrium if the price of orange juice PJ remains unchanged? Why? How much quantity of orange juice will finally be exchanged on the market? (2 marks)
b)Find the market price necessary to restore equilibrium. Deduce the equilibrium quantity of orange juice. (2 marks)
3)Draw a graph to illustrate your answers. (1 mark)