Consider the following scenario: Lettuce and spinach are substitutes. Lettuce and tomatoes are complements. Lettuce is a normal good. During the winter, about 20% of the lettuce crop was destroyed by flooding.
a. What is the effect of the flooding in the lettuce market. Explain your reasoning using a supply/demand diagram. Carefully show any shifts and/or movements along the curves. How do the equilibrium quantity and price change?
b. What is the effect of the flooding in the spinach market. Explain your reasoning using a supply/demand diagram. Carefully show any shifts and/or movements along the curves. How do the equilibrium quantity and price change?
c. What is the effect of the flooding in the tomato market. Explain your reasoning using a supply/demand diagram. Carefully show any shifts and/or movements along the curves. How do the equilibrium quantity and price change?
d. If at the same time that part of the lettuce crop was destroyed, consumer income also decreased, then, ceteris paribus, what would happen in the market for lettuce? Explain your reasoning using a supply/demand diagram. Carefully show any shifts and/or movements along the curves.