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This change affects not only the market for cherries but other markets as well
This change affects not only the market for cherries but other markets as well. Assume that blueberries are a substitute for cherries. Which of the following statements are true when considering the effect of the decrease in the demand for cherries on the general equilibrium of an entire economy? Check all that apply.
a-The change in the price of cherries will probably lead to changes in other markets, such as the market for blueberries.
b-Changes in other markets to respond to the cherries market could cause more changes to the cherries market in order for the economy to reach general equilibrium.
c-The change in the cherries market may cause firms that pick cherries to shut down, and the resources used by those firms may be used by firms entering other markets.
Please provide explanations to your answers. Thanks.Supply PRICE OF CHERRIES O D 02 QUANTITY OF CHERRIES Display Sering
The effect of a change in demand across markets
Consider the market for cherries shown on the following graph. This market is initially at equilibrium where the supply curve (Supply) and demand curve (D1) intersect.
Suppose that a news story suggesting that cherries contain dangerously high levels of pesticides compared to other fruits causes the demand for cherries to fall. The market for cherries after the change in demand is depicted by the new demand curve (D2).
Expert Solution
There is decrease in demand of cherries which result in decrease in price of cherries and decrease in quantity of cherries.
Blueberries are substitute of cherries.
Option A is correct because consumers will raise demand of blueberries as they look for cheaper alternative available with them.
Option B is correct as increase in demand of blueberries will raise price of blueberries and consumers to shift back to cherries such that its demand curve shift back to D1 and take cherry market to equilibrium.
Option C is correct because decrease in price of cherry reduce the overall profit generated by cherry producer and induce them to shut down.
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