A Challenge in Price Theory.
Recently, I posed a thought-provoking question to my economics students at the Naval Postgraduate School. Interestingly, a significant proportion managed to answer it correctly, and this was long before the advent of AI assistance. (Naturally, they had a few days to mull it over, given it was part of a problem set.)
Let’s see how you fare.
Imagine the government enacts a binding price ceiling on oranges, yet refrains from doing the same for orange juice. Following the establishment of this price cap on oranges, what do you anticipate will occur with the price of orange juice? (Assuming a competitive market exists for oranges.) Be sure to show your reasoning.
In a few days, I’ll share the solution and attempt to upload a diagram illustrating supply and demand using my cellphone camera.
In the meantime, feel free to dive in if you wish.
