Illustrating graphically and specifying the assumptions upon which your reasoning is based, describe briefly
The effects on price and output of oranges of an increase in consumers income
To illustrate graphically the effects of an increase in consumers' income on the price and output of oranges, we can use a demand and supply diagram.
Assumptions:
1. Ceteris paribus: We are assuming that other factors affecting the demand and supply of oranges remain constant, such as prices of other goods, consumer tastes and preferences, or technology used in production.
2. Normal good: Oranges are assumed to be a normal good, meaning that as consumers' income increases, they will demand more oranges.
Graphically, we will have two curves: the demand curve and the supply curve.
1. Demand Curve: The demand curve shows the relationship between the price of oranges and the quantity demanded by consumers. Initially, we assume that the demand for oranges is given by D1.
2. Supply Curve: The supply curve shows the relationship between the price of oranges and the quantity supplied by producers. Initially, we assume that the supply of oranges is given by S1.
Now, when consumers' income increases, their purchasing power increases, and they can afford to buy more oranges. This leads to an increase in the demand for oranges. As a result, the demand curve shifts to the right from D1 to D2.
The new equilibrium price and quantity of oranges will be determined by the intersection of the new demand curve (D2) and the supply curve (S1). The increase in demand will cause the price of oranges to increase and the quantity of oranges traded to increase as well.
In summary, an increase in consumers' income will lead to an increase in the demand for oranges, causing the price and output of oranges to increase. This is based on the assumption that oranges are a normal good and that other factors affecting the demand and supply of oranges remain constant.