Suppose Apple Juice Is A Substitute Good For Orange Juice

2. Suppose apple juice is a substitute good for orange juice.

a. Graph a Supply and Demand curve for orange juice. Label the equilibrium as P* and Q*.

b. Now suppose the price of apple juice decreases. In the above graph, show the resulting shift that would occur in the market for orange juice.

c. At the original price P*, would there now be excess demand or excess supply?

d. Would this cause the price of orange juice to increase or decrease?

e. As prices adjust what happens to the supply curve? Will producers produce more or less orange juice?