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I'm doing an introductory class on economics and I'm leaning about supply and demand. There's one exercise I'm stuck on: Let's say we're country A and we sell bananas to country B. If country B suddenly boycots the sale of all banana's from our country (A). Which effect will that have on the supply and demand curve?

Instinctually I'd say supply would rise because we (A) have an excess.

But in our list of factors that affect supply I never saw "amount of potential buyers". That factor is only there for the demand curve. (More buyers = more demand)

There is factor that states that if the price of a good goes down that the supply will go down: The supply curve dictates how many banana's producers are willing to sell for a certain price. If country B stops buying we have a surplus of banana's in country A. This means the price of a banana will go down. If the price goes down we're willing to sell less of them. If we start producing less bananas supply will go down.

So how does this shake out? Does supply go up or down?

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You ask about the effect on "the supply and demand curve" (I assume you mean curves). Especially when the scenario involves more than one country, it is important to clarify to which good these supply and demand curves relate. Presumably you mean supply of and demand for bananas produced in country A.

A further point to clarify is whether we are concerned with the short term, in which the relevant stocks of capital, in this case banana trees together with any equipment used in harvesting and transport, remain unchanged, or with the long term, in which such capital may vary.

In the short term, a boycott by country B will probably reduce demand, that is, it shifts the whole demand curve to the left. But it should not affect supply, that is, the supply curve as a whole should not shift. Assuming that both supply and demand are moderately elastic, however, the reduction in demand will in turn lower both the equilibrium price and the quantity supplied.

The reason why I include the qualification "probably" in the above is that the effect of the boycott on other countries is unknown. If country B can still obtain bananas of equivalent quality from other banana-exporting countries, and maintains the same total level of banana imports, and if in turn other banana-importing countries maintain their total banana imports, then there would be a possible scenario in which demand for A's bananas remained unchanged, with the reduction in demand from B being exactly offset by increased demand from other countries.

Turning to the long term, how A's banana growers react to the boycott is likely to depend on their experience in the short term. If they find that the price of their bananas falls, and judge that this lower price is likely to be maintained, they will probably respond by reducing the capital they devote to banana growing, including planting other crops on some of the land previously devoted to bananas. In that case the supply of bananas will fall in the long term: more precisely, although the long-run supply curve will not shift, there will be a movement along that curve to the left, to a point on a different short-run supply curve corresponding to the reduced quantity of capital.

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Supply does not change. You seem to be confusing the 'supply' which is the relationship between quantity supplied and price and quantity supplied.

Supply itself is unaffected. For example, if supply before boycott was $S(p)= -10+p$ then after boycott it will still be $S(p)= -10+p$.

However, quantity supplied will change. Because of the shift in demand to the right new equilibrium price will be lower. This will change quantity supplied but not supply. For example, if original price was 100 then the supply of bananas will 90. If the price drops (due to shift of demand to the left) to say 80 the supply will be 70 but that is change in quantity supplied not change in supply.

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  • $\begingroup$ I see. In our Dutch textbook they mention a term: "ceteris paribas". This means that the supply and demand graphs only stay the same if relevant factors remain the same. This would be consumer preferences, ease of production, cost of inputs etc. If ceteris paribas is maintained we travel "on the supply curve". If not the supply curve itself changes. One of the reasons for change was "If the producer expects prices to drop he will make less of that product and supply will decline". Does that not apply here? $\endgroup$
    – Zwettekop
    May 25, 2022 at 22:23
  • $\begingroup$ @ZwarteKop it is ceteris paribus. Also, yes that means all other things remain same with exception for the one thing you want to change above it would be consumer preferences hence demand. Also, in this case we do travel along supply curve, but note even if we have ceteris paribus assumption and we would examine lets say technology shock supply would have shifted. Here only demand shifts because the boycott only affects peoples demand and then we assume all else is change. Of course, if the boycott would somehow changed willingness of producers to produce (for example it would change $\endgroup$
    – 1muflon1
    May 25, 2022 at 23:30
  • $\begingroup$ public perception of the industry so much people would be ashamed of producing in said industry and would require higher prices no matter what the production is) supply could shift. $\endgroup$
    – 1muflon1
    May 25, 2022 at 23:31

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