Suppose that there are freezing temperatures in Florida just as the orange crop is ripening. At the same?

Question

time the press reports that drinking orange juice significantly raises the risk of stomach cancer. Predict the effect on equilibrium price and quantity.

Answer 1

I'm guessing this is a homeowrk problem for your micro class???

My advice is to analyze each event separately, and then put them together.....

Will freezing temperatures affect the demand or the supply curve? Which direction will the curve shift? What will this do to the equilbrium price and quantity?

Similarly, will the press reports on OJ affect the demand curve or the supply curve? What will this do to the equilbrium price and quantity?

Now, put them together, and see what will happen!

Answer 2

All things equal, there will be a crimp in both (remember that supply and demand are determined independently), so that the net effect is difficult to figure. It also depends on whether people trust the news (considering that stomach cancer is all but nonexistant after the advent of food safety measures in the 19th century), whether citrus farmers take technological actions (such as spraying the fruit with water to keep their temps from dropping below freezing), and whether someone on the commodities markets decides its a good time to corner the market.

Finally, also consider that we get most of our citrus concentrate from Brazil.

If I had to guess, I'd say equilibrium quantity would be substantially reduced, equilibrium price only slightly increased.