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The following headine appeared in the Hindustan Times on 2 August 2014, "Crop damaged in Himachnal sent tamato prices roaring in Delhi. " Use a diagram and economic theory to analyse the statement . |
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Answer» Solution :When the tomato crop was DAMAGED in Himachal the supply of tomatoes DECREASES. This means that the supply curve shifts lettward from SS to `S_(1) S_(1)` . With NEW supply curve `S_(1) S_(1)`, there is excess demand at initial price OP because at price OP, supply is PB and demand is PA, so there is excess demand of AB at price OP. Due to this excess demand, competition among the consumer will raise the price of tomato. Due to this rise in price of tomato, there is upward movement along the supply curve (xpansion in supply) from B to C and Similarly, there is upward movement along the demand curve (Contraction in demand) from A to C. So, finally, equilibrium price of tomato rises fromn OP to OP and equilibrium QUANTITY of tomato falls from OQ to `OQ_(1)`. Conclusion: This explains how prices in Delhi rose when the tomato crop got damaged in Himachal. Value: Analytic ` (##FM_M_ECO_XII_P1_C12_E02_062_S01.png" WIDTH="80%"> |
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