Cranberries--what happens to the Surplus?
8
Pe Price Of ranberries Quantity of Cranberries 8 M Qs=Qd D* S* “A” Market for Cranberries The Market for Cranberries in equilibrium at Price “Pe” and Quantity of 8 million barrels Quantity Supplied = Quantity Demanded. D* (Private Market)
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Transcript of Cranberries--what happens to the Surplus?
Pe
PriceOf
Cranberries
Quantity of Cranberries
8 MQs=Qd
D*
S*
“A”
Market for Cranberries
The Market for Cranberries in equilibriumat Price “Pe” and Quantity of 8 million barrels where
Quantity Supplied = Quantity Demanded.
D* (Private Market)
Pe
PriceOf
Cranberries
Quantity of Cranberries
8 MQd
D*
S*
“A”
Market for Cranberries
16 MQs
“B”
The Harvest for 2014 is much higherthan expected. While the market absorbs
8 million barrels (Quantity Demanded) the Quantity Supplied is 16 million—Point “B”.
Quantity Supplied is GREATER THAN Quantity Demanded.
D* (Private Market)
Pe
PriceOf
Cranberries
Quantity of Cranberries
8 MQd
S*
“A”
Market for Cranberries
16 MQs
“B”
S 1
D* (Private Market)
The Market Supply Curve, “S 1” shifts to the RIGHTindicating an INCREASE in Quantity Supplied
at any given Price.
Pe
PriceOf
Cranberries
Quantity of Cranberries
8 MQd
D*
S*
“A”
Market for Cranberries
16 MQs
“B”
S 1
“C”
D* (Private Market)
The Market PRICE wants to DECREASETo Point “C”, which would be good forConsumers but bad for Producers ofCranberries.
Pe
PriceOf
Cranberries
Quantity of Cranberries
8 MQd
D*
S*
“A”
Market for Cranberries
16 MQs
“B”
S 1
“C”
D* (Private Market)
SURPLUS
If the Price did not decrease we wouldHave a SURPLUS of 8 M barrels of Cranberries
Instead of a Surplus of something less than 8 million(the Quantity Demanded would increase at a lower
price absorbing some of the Surplus.
How can we resolve this?
Pe
PriceOf
Cranberries
Quantity of Cranberries
8 MQd
D* (Private Market)
S*
“A”
Market for Cranberries
16 MQs=Qd
“B”
S 1
D 1 (Private Market + Govt)
The Government can step in and becomea market participant on the DEMAND side.
Pe
PriceOf
Cranberries
Quantity of Cranberries
8 MQd
D* (Private Market)
S*
“A”
Market for Cranberries
16 MQs=Qd
“B”
S 1
D 1 (Private Market + Govt)
At “Pe” the government would increased the Quantity Demanded by 8 million barrels of
Cranberries to absorb the increase of 8 million in Quantity Supplied— Point “B”.
The Demand Curve (“D 1”) for Cranberries would shift to the RIGHT
The Price would remain at “Pe” at Quantity 16M. Producers happy and Consumers none the wiser.
Pe
PriceOf
Cranberries
Quantity of Cranberries
8 MQd
D* (Private Market)
S*
“A”
Market for Cranberries
16 MQs=Qd
“B”
S 1
D 1 (Private Market + Govt)
It is not realistic to think the Govt will pick up all this slack. Cranberry producers could collectively
seek to promote the benefits of Cranberries to individuals and those in the food industry as a stand alone product or a complement to some
other existing product.
