Exercise 3

Use supply and demand analysis to explain and predict what will happen to the equilibrium price and quantity of apples if:

a)Bush fires destroy many 'apple orchards'.

b)There is general increase in family incomes and apple are considered a 'normal' good.

Illustrate your answer on two separate diagram treating (a) and (b) as separate events.

Use the three step process for 'comparative statics' as you explain each situation.