1. To be able to make good decisions, managers must be able to understand the impacts of

changes in their external environments (e.g., cost and demand changes) on the price and

quantity sold of their product(s).

A. Assume that you are an almond grower in the Central Valley. Determine the impact of the

following changes on the equilibrium price and quantity of almonds. Use supply and demand

graphs to show your results. Briefly explain why you shifted the curve(s) and what impact

the changes had on the price and quantity sold of almonds.

(1) People develop a preference for cashews (a substitute for almonds). At the same time, the

minimum wage is increased, and almond workers were previously paid wages below the new

minimum wage.

(4)

(2) Aflatoxins (a disease negatively affecting tree nuts) are found in almond orchards in the

Central Valley. At the same time, the Almond Board has been conducting an advertising

campaign to raise the awareness of the health benefits of almonds.

(4)

B. Assume that a large almond company comes into the Central Valley and purchases many of

the small almond producers. Explain how this consolidation in the industry would impact the

operation of the industry, including the impact on price, quantity sold, and profitability.

(6)

C. Assume that the demand for almonds is given by the following function:

Q

D

= 325 - 3.4P

A

+ 5.25I + 3.45P

P

+ 3.75P

C

- 6.45P

O

, where

Q

D

= quantity demanded of almonds (millions of pounds)

P

A

= price of almonds (dollars per pound)

I = consumer income (thousands of dollars)

Pp = price of pistachios (dollars per pound)

Pc = price of cashews (dollar per pound)

Po = price of almond oil, which is made from almonds (dollars per gallon)

(1) Based on the demand curve above, are almonds a normal good or an inferior good?

Explain.

(4)

(2) Based on the demand curve above, what is the relationship between almonds and

pistachios? Explain.

(3)

(3) Based on the demand curve above, what is the relationship between almonds and almond

oil? Explain.

(3)

(4) What is the equation of the demand for almonds if consumer income is $ 62,000, the

price of pistachios is $ 5.65 per pound, the price of cashews is $ 7.30 per pound, and the

price of almond oil is $ 10 per gallon.