Avocados: a trend meets a drought

The chain in words

1. Step 1

   Before the season

   Avocados sell at 2 dollars each. The horizontal axis is millions of avocados per week. The vertical axis is the price per avocado. The market starts at E₀.

2. Step 2

   Demand shifts right

   Diet blogs put avocados on every breakfast plate. Buyers want more at every price, so demand shifts right. On its own, this would push the market to E₁: a higher price and a larger quantity.

3. Step 3

   Supply shifts left

   Then the drought hits the orchards. Growers can deliver fewer avocados at every price, so supply shifts left. The market moves again, to E₂.

4. Step 4

   Compare the end with the start

   Both shifts pushed the price up, so the price at E₂ is clearly higher than at E₀. The demand shift raised quantity and the supply shift lowered it. Here they roughly cancel, and quantity ends close to where it began.

Takeaway. When demand rises and supply falls, price rises for certain but the change in quantity depends on which shift is bigger.

Draw it yourself

More on the supply and demand graph