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Avocado prices have increased from $1
Avocado prices have increased from $1.17 each in July 2018 to $2.10 each in July 2019. Explain whether or not each of the following factors played a role in the price increase. Use demand and supply concepts in your answer.
a) People in Europe and Asia are eating more avocados.
b) The avocado crop in California was the smallest in decades
c) People in the United States are eating less Mexican food and thus less guacamole (which contain avocados)
d) Tariffs on avocados from Mexico increased from 10% to 25%
e) Avocados do not have any substitutes
Expert Solution
a) If people in Europe and Asia eat more avocados, the demand for avocados goes up. When this happens, the prices of avocados will go up.
b) If the number of avocados supplied falls, the prices will go up.
c) If fewer avocados are being used, their demand will fall. This will reduce the price and not increase it, as is the case here.
d) If the tariffs increase, the increased cost will be passed on to the customers. This could be a reason behind the rise in price.
e) If avocados do not have any substitutes, the demand for them can never fall and will increase causing an increase in price.
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