Question

Frigid Florida Winter is Bad News for Tomato Lovers An unusually cold January in Florida destroyed entire fields of tomatoes. Florida's growers are shipping only a quarter of their usual 5 million pounds a week. The price has risen from \(\$ 6.50\) for a 25 pound box a year ago to \(\$ 30\) now. Source: \(U S A\) Today, March 3,2010 a. Make a graph to illustrate the market for tomatoes before the unusually cold January and show how the events in the news clip influence the market for tomatoes. b. Why is the news "bad for tomato lovers"?

Short answer

A cold January decreased the supply of tomatoes, raising prices from \(\$ 6.50 \) to \(\$ 30 \). This is bad news for tomato lovers due to the higher costs.

Step-by-step solution

Understand the market equilibrium before the cold January

Before the unusually cold January, the market for tomatoes was at equilibrium. This means that the quantity of tomatoes supplied was equal to the quantity of tomatoes demanded at the price of \( \$ 6.50 \) for a 25-pound box.

Draw the initial supply and demand curves

Draw a typical supply and demand graph with the price (P) on the vertical axis and quantity (Q) on the horizontal axis. Label the initial supply curve as \(S_1\) and the initial demand curve as \(D_1\), with their intersection representing the initial equilibrium point \(E_1\) at \(P_1 = \$ 6.50\) and the quantity as \(Q_1= 5 \) million pounds per week.

Show the shift in the supply curve

Due to the unusually cold January, entire fields of tomatoes were destroyed, resulting in a significant decrease in the supply of tomatoes. This shift in the supply curve is represented by a leftward shift from \(S_1\) to \(S_2\).

Determine the new equilibrium

With the new supply curve \(S_2\), the new equilibrium point \(E_2\) occurs at the intersection of \(S_2\) and the original demand curve \(D_1\). At this new equilibrium, the price rises to \(P_2 = \$ 30\) and the quantity decreases to \(Q_2 = 1.25 \) million pounds per week.

Draw the new equilibrium on the graph

Add the new supply curve \(S_2\) and the new equilibrium point \(E_2\) to the graph. Indicate the higher price \(P_2\) and lower quantity \(Q_2\) at this new equilibrium.

Explain why the news is bad for tomato lovers

The news is bad for tomato lovers because the destruction of tomato fields has reduced the supply of tomatoes, leading to a sharp increase in their price from \(\$ 6.50 \) to \(\$ 30 \). This higher price means that consumers have to pay significantly more for tomatoes or reduce their consumption.

Key concepts

supply and demand

Supply and demand are fundamental concepts in economics. They describe the relationship between the amount of a good or service that producers are willing to sell and the amount that consumers are willing to buy at different prices.
In the case of tomatoes in Florida, let's look at what happened. Initially, the market was in equilibrium. This means that the available supply of tomatoes was exactly meeting the demand at a price of \( \$ 6.50 \) per 25-pound box.
The supply curve represents producers' willingness to sell tomatoes at different prices. A higher price usually means producers are willing to supply more. The demand curve represents consumers' willingness to buy tomatoes at different prices.
Now, an external event, like the cold winter in Florida, destroyed much of the tomato crop. This reduced supply significantly. We can see a leftward shift in the supply curve on the graph.
The shift causes a new equilibrium because producers cannot supply as many tomatoes as before. Hence, the price becomes higher due to the reduced supply.

market equilibrium

Market equilibrium occurs where the supply and demand curves intersect. This point indicates the price at which the quantity of goods supplied equals the quantity demanded.
In our example, before the cold weather, the equilibrium was at a price of \( \$ 6.50 \) and a quantity of 5 million pounds of tomatoes per week.
After the cold snap, the supply curve shifted leftward to reflect the reduced number of tomatoes available. The new equilibrium is at a higher price and a lower quantity. Specifically, the price rose to \( \$ 30 \) per 25-pound box, and the quantity fell to 1.25 million pounds per week.
This new market equilibrium indicates the adjustments in the market based on available supply and prevailing demand.

price elasticity

Price elasticity of demand measures how much the quantity demanded of a good responds to a change in price. If the demand for tomatoes is elastic, then the increase in price will lead to a significant decrease in the quantity demanded.
However, if the demand for tomatoes is inelastic, the quantity demanded will not change much despite the price increase.
In the case of Florida tomatoes, the sharp rise in price from \( \$ 6.50 \) to \( \$ 30 \) might suggest that the demand for tomatoes is inelastic. This is because consumers still need to buy tomatoes even though they are much more expensive. Inelastic demand usually occurs for essential goods, where consumers have fewer alternatives to switch to.

impact of external shocks

External shocks are unexpected events that affect supply and demand in the market. For the tomato market in Florida, the unusually cold January was an external shock.
This type of event can disrupt supply and cause significant changes in prices and quantities. In our case, the cold weather destroyed tomato fields, leading to a substantial reduction in supply.
Such external shocks can cause supply curves to shift leftward, leading to higher prices and reduced quantities. These shocks create new market conditions, forcing consumers and producers to adapt.
Ultimately, tomato lovers face higher prices and lower availability of their favorite produce. These external shocks showcase the importance of understanding how unexpected events can ripple through the market and impact everyone involved.