Economics – The allocation of resources - Price changes | e-Consult

Answer: The sharp increase in the price of apples can be explained by changes in either the law of demand or the law of supply, or a combination of both.

Scenario 1: Increase in Demand

• If there has been an increase in the demand for apples, this will shift the demand curve to the right.
• At any given price, the new demand curve will intersect the supply curve at a higher price and quantity.
• This leads to a shortage of apples, which puts upward pressure on the price. Consumers are willing to pay more to obtain the limited available apples.
• Examples of factors that could cause an increase in demand include: a successful advertising campaign, a change in consumer tastes (e.g., increased awareness of the health benefits of apples), or an increase in consumer income.

Scenario 2: Decrease in Supply

• If there has been a decrease in the supply of apples, this will shift the supply curve to the left.
• At any given price, the new supply curve will intersect the demand curve at a higher price and a lower quantity.
• This leads to a shortage of apples, which puts upward pressure on the price.
• Examples of factors that could cause a decrease in supply include: bad weather (e.g., frost, drought), disease affecting the apple crops, a shortage of labour in apple orchards, or an increase in the cost of resources (e.g., fertiliser, pesticides).

Scenario 3: Changes in both Demand and Supply

• A simultaneous increase in demand and a decrease in supply will lead to a significant price increase. The combined effect of both shifts will result in a substantial shortage and a sharp rise in the price of apples.

In conclusion, the price increase in apples is likely due to either an increase in demand, a decrease in supply, or a combination of both. The specific reason would depend on the particular circumstances affecting the apple market.