Grape Juice Market:

-Initial equilibrium is at a price of $80 a crate and a quantity of 400.

-A hurricane rips through the Argentinean countryside and destroys a large amount of the grape crop.

-At the initial equilibrium price of $80, quantity supplied on the new supply curve is 225.

Instructions:

Use the information above to answer the following questions:

1. Is there excess demand or excess supply in the interim period before the new equilibrium? (Please make sure that you explain why there is excess demand or supply)

2. After market forces are allowed to work, is the new equilibrium price higher or lower?

3. Why is the new market equilibrium price higher or lower? (For full credit describe in a couple sentences what is happening initially after the shift, when the market is in disequilibrium)

4. ***Graph the market and the subsequent changes in the market on a piece of paper/tablet. Please make sure that you label all of the key points and information on the graph.