The California Citrus Frost of January, 2007

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Transcript The California Citrus Frost of January, 2007

If the supply curve shifts and the
demand curve does not shift,
A) The old and new price-quantity
combinations lie on the original demand
curve.
B) The old and new price-quantity
combinations lie on the new supply curve.
C) The old and new price-quantity
combinations lie on the old supply curve.
D) The new price-quantity combination lies half
way between the old and the new supply
curves.
At a competitive equilibrium,
price, the quantity demanded
equals the quantity supplied.
A) True
B) False
When supply curve shifts, price
and quantity move along demand
curve
Price
Old
Supply
Curve
Old Price
Quantity
Combination
New Price
Quantity
Combination
New Supply
Curve
Demand Curve
Quantity
The demand curve slopes up and
the supply curve slopes down.
If the supply curve shifts and
demand curve does not change
A) Prices and quantities move in the same direction
as each other.
B) Prices and quantities move in opposite directions
from each other.
C) If supply curve shifts up prices and quantities
move in same direction. If supply curve shifts
down, they move in opposite directions.
With shifting supply curve, prices
and quantities move in opposite
directions.
Price
Old
Supply
Curve
Old Price
Quantity
Combination
New Price New Supply
Quantity
Curve
Combination
Demand Curve
Quantity
If the demand curve shifts and the
supply curve does not shift,
A) The old and new price-quantity
combinations lie on the original demand
curve.
B) The old and new price-quantity
combinations lie on the new demand curve.
C) The old and new price-quantity
combinations lie on the original supply
curve.
D) The new price-quantity combination lies half
way between the original and the new
demand curves.
When demand curve shifts, price
and quantity move along supply
curve
Price
New Price
Quantity
Combination
Supply
Curve
New
Demand
Curve
Old Price
Quantity
Combination
Quantity
The demand curve slopes down
and supply curve slopes up.
If the demand curve shifts and
supply curve does not change:
A) Prices and quantities move in the same direction
as each other.
B) Prices and quantities move in opposite directions
from each other.
C) If demand curve shifts up prices and quantities
move in same direction. If demand curve shifts
down, they move in opposite directions.
When demand curve shifts, price
and quantity move in same
direction
Price
New Price
Quantity
Combination
Supply
Curve
New
Demand
Curve
Old Price
Quantity
Combination
Quantity
If the supply curve is horizontal and
the demand curve shifts down, what
happens to equilibrium price and
quantity?
1. Price and Quantity fall.
2. Price falls, quantity stays
same.
3. Quantity falls, price stays
same.
4. Price falls, quantity rises.
5. Price rises, quantity falls.
Don’t memorize! Draw the
graph.
P
Demand curve shifts down.
Price stays constant.
Quantity falls.
Q
Application: The California
Citrus Frost of January, 2007
California orange industry
• California grows about 95% of the U.S.
navel orange crop. These are the main
oranges for eating.
• Florida oranges are mainly for juice.
• Oranges are imported from South America
and Australia, but only in the U.S.
summer.
Estimated crop loss from frost
• About 30% of this year’s crop was
harvested at the time of the frost (Jan 12).
• About 2/3 of the remaining oranges will
be lost.
• Total loss is 2/3 x 70%=46% of California
crop.
• This is 46% x .95 = 44% of the total U.S.
crop.
What happened to price
• USDA reports that wholesale price of
navel oranges increased from $16 per
carton to $35 per carton.
• That is a price increase of $35-$16=$19.
• As a percentage price increase that is
(19/16)x100= 119%
Price elasticity of demand for navel
oranges
• Quantity produced fell by 44%.
• Price rose by 119%.
• Price elasticity is: percent change in quantity
divided by percent change in price.
• Thus price elasticity is about
-47 / 119 = -.37
Supply and demand for navels
$35
$16
31 m
66 M
Big loss to California?
• L.A. Times reports that “California’s $1.1
billion orange crop is severely damaged.”
• Times reports that “Damage to all fruit and
vegetable crops” will be more than $700
million.
• Gov Schwarzenegger requests federal
disaster aid for growers and related
business because frost has “destroyed
nearly $1 billion worth of California citrus.
Lets take another look
• Estimated navel orange crop for 2007 was 66
million cartons.
• Price before frost was $16 per carton.
• Revenue if no frost 66 x 16 =1.060 billion.
• About half of the California crop was lost and
price went to $35 per carton.
• Value of crop after the frost
33 x 35 =1.160 billion.
• This is a loss?
• Looks more like a $100 million gain.
Who gains who loses?
• Gainers:
– Growers who lost less than 55% of their crop and sold
at the new price.
– Wholesalers who bought before the frost and can now
sell at post-frost prices.
• Losers:
– Growers who lost more than 55% of their crop.
– Pickers who are out of work.
– U.S. consumers who must pay more money for fewer
oranges.
• Why should we be taxing U.S. consumers to pay
growers, when consumers, not growers, are the
big losers?
See You Friday