Reference no: EM131681624

Hurricanes Irma and Maria tore through the Caribbean last month and left wreckage and loss of life in their paths. In the agricultural sector, the storms did significant damage to the farmland and crops throughout the region. For instance, as much as 30% of Puerto Rico's banana crop and 60% of the Dominican Republic's banana crop were lost. Given these substantial losses, it is reasonable to assume that the price of bananas will increase. This is particularly impactful to the U.S. who is the world's largest importer of bananas. For instance, food service retailers like Tropical Smoothie, who use bananas as a key ingredient in their food products, will be impacted by this price increase. Based on what you have learned regarding supply and demand and market equilibrium, analyze how would the high price of bananas at the farm-level will impact the retail-level market for fruit smoothie beverages?

1. Show any shift(s) in supply and/or demand that would occur in the retail-level for fruit smoothie beverages due to the increase in the price of bananas. Show your work on the figure below.

2. What happens to equilibrium quantity of fruit smoothie beverages?

Circle One:           Increases              Decreases             Stays the Same  

3. What happens to equilibrium price of fruit smoothie beverages?

Circle One:           Increases              Decreases             Stays the Same  

4. Based on your answer to (1), how would you best describe your analysis:

a. A change in demand led to a change in supply.

b. A change in supply led to a change in demand.

c. A change in supply led to a change in the quantity traded in the market.

d. A change in demand led to a change in the quantity traded in the market.