Question

In both the production of strawberries and roses fertilizer is an important input. To meet increasing demand producers of strawberries begin to buy fertilizer in bulk. What will happen to the equilibrium price and quantity of roses?

Answer 1

The equilibrium price of roses will likely increase, while the equilibrium quantity may decrease.

Step-by-step explanation:

As producers of strawberries buy fertilizer in bulk to meet rising demand, the increased demand for fertilizer might cause a shortage in the market, leading to a rise in its price. Since roses also require fertilizer, rose producers will face higher input costs. To compensate, they may increase the price of roses to maintain their profit margins. Consequently, the equilibrium price of roses will likely rise. However, with higher input costs, some rose producers might reduce their output or exit the market, causing the equilibrium quantity of roses to potentially decrease due to the increased cost of production.

Therefore, the equilibrium price of roses is expected to increase, while the equilibrium quantity may decrease due to the shared dependence on the fertilizer market affected by bulk buying in strawberry production.