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Heavy rains i...

Question

Heavy rains in Maharashtra during 2005 and 2006 caused havoc with the rice crop. What point in above figure is most likely to be the new equilibrium price and quantity?

A

Point 6

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B

Point 3

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C

Point 7

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D

Point 8

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Solution

The correct option is B Point 3
Point 3.
Due to heavy rains in Maharashtra the supply for rice crops will reduce and the supply curve will shift towards the left from S1 to S3 but the demand will remain unchanged at D1 because people will demand same regardless. The equilibrium point for S3 and D1 is point 3. In this case the price will increase and quantity will reduce.

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