Microeconomics introduction.

[amai]

I am asked to comment on this statement from an economic perspective.

"Over the last several months swarms of locust have destroyed 80% of almond plantations, thus dramatically decreasing the supply of

almonds in the near future. This means that for the next several years we will observe shortages not only of almonds, but of other

nuts as well."

My answer is that this statement is false. When almond plantations are destroyed, the supply will shift and drive the price up. The market will eventually reach equilibrium as people substitute the almonds for other kinds of nuts which result in a decrease in quantity demanded for almonds. This will happen until the market reaches equilibrium when marginal value of the consumers equal to the market price in the next several years and results in no shortage in the long-run.

Does my analysis answer the question successfully or is there some aspect i didn't comment on?.

[Endy0816]

 

I am asked to comment on this statement from an economic perspective.

"Over the last several months swarms of locust have destroyed 80% of almond plantations, thus dramatically decreasing the supply of

almonds in the near future. This means that for the next several years we will observe shortages not only of almonds, but of other

nuts as well."

My answer is that this statement is false. When almond plantations are destroyed, the supply will shift and drive the price up. The market will eventually reach equilibrium as people substitute the almonds for other kinds of nuts which result in a decrease in quantity demanded for almonds. This will happen until the market reaches equilibrium when marginal value of the consumers equal to the market price in the next several years and results in no shortage in the long-run.

Does my analysis answer the question successfully or is there some aspect i didn't comment on?.

 

 

What will happen to the price of the other nuts people are substituting the Almonds with?

[amai]

Since people are buying more of the other nuts, there will be a shortage due to the increase in demand.in the short run but again, the market will come to equilibrium and there will be no shortage of surplus.

 

Is this correct?

[Endy0816]

That should work. I don't want to comment on "correctness" as I don't know your teacher but I think most would consider that as thinking along the right lines.

[physica]

I agree it's running along the right lines. economics like similar sciences can be open to the bias of the teacher so the best thing is to see what type of politics your teacher leans to. Unfair but this is life and one of the main reasons why I'm majoring in physics. One concept that is widely accepted in economics and is classic is the invisible hand concept. I don't want to give you too much as it's more rewarding if you forge the answer yourself and learn more. Below is a link that gives a good concise description of the invisible hand in relation to supply and demand.

 

http://www.factmonster.com/cig/economics/equilibrium-mr-demand-meet-mr-supply.html