Monday, December 24, 2012

Frost

To abate Alzheimer's, I work problems at random.  Here's a problem I found On the Internet.


True or False
: If a frost wipes out half the Florida orange crop, then some people who want to buy oranges will not be able to.

When a frost wipes out an orange crop, the supply curve shifts to the left and the price rises. If people really wanted to buy the oranges, they would simply pay a higher price to get want they wanted.  So the answer is "false".  But I think there's a secondary effect.  The higher prices would induce more suppliers into the market and the increase in supply would bring the price down.  The price system works to allocate resources and provide incentives to make a profit.  


1 comment:

  1. This, of course, assumes that oranges can be conjured from their basic parts on demand, rather than requiring the planting of trees, waiting for them to grow and so on. The time scale of a frost is on the order of a year. The time scale of orange supply is on the order of several years. Despite economic logic to the contrary, it is unlikely we'll ever see an orange supply-demand equilibrium.

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