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Chapter 3: Problem 8

[Related to Solved Problem 3.4 on page 94] According to one observer of the lobster market: "After Labor Day, when the vacationers have gone home, the lobstermen usually have a month or more of good fishing conditions, except for the occasional hurricane." Use a demand and supply graph to explain whether lobster prices are likely to be higher or lower during the fall than during the summer.

Short Answer

Expert verified
The price of lobsters is likely to be lower in the fall than during the summer. This is because the demand decreases (vacationers go home) and supply increases (better fishing conditions) after Labor Day. The laws of supply and demand state that an increase in supply and a decrease in demand will lead to a decrease in price.

Step by step solution

01

Understand seasonal demand changes

First, observe the changes in demand that occur from summer to fall. During the summer, when the vacationers are present, the demand for lobsters is higher. This shrinks after Labor Day, when the vacationers go home.
02

Understand seasonal supply changes

Next, assess the changes in supply from summer to fall. After Labor Day, lobstermen usually have a month or more of good fishing conditions, except for the occasional hurricanes. So, the supply is likely to increase.
03

Draw the supply and demand graph for summer

Consider a demand-supply graph with the quantity of lobsters on the x-axis and the price on the y-axis. In summer, the higher demand and lower supply will result in a higher equilibrium price.
04

Draw the supply and demand graph for fall

For fall, represent the lower demand and higher supply on the graph. This will result in a lower equilibrium price.
05

Compare prices

By comparing the equilibrium prices in the two seasons, conclusion can be drawn. Price will be higher in summer and lower in fall.

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