Unit 2 AS1_ Supply and Demand of Oranges 2022

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1 Unit 2 AS1: Supply and Demand of Oranges 2022 Devin White Kean University Principles of Economics I Professor Bergan January 29, 2022

2 Unit 2 AS1: Supply and Demand of Oranges 2022 The Law of Demand, commonly known as supply and demand, is a fundamental economic principle that outlines the relationship between price and quantity. According to the text the law of demand states, “ holding everything else constant, when the price of a product falls, the quantity demanded of the product will increase, and when the price of a product rises, the quantity demanded of the product will decrease”.(Hubbard & O’Brien). There are many factors that affect the dynamics of a product's price in accordance with this theory. Recently, there has been a huge increase in the price of Orange Juice. Data collected from Trading Economics on January 27, 2022 shows, “ Orange Juice increased 18.05 USd/Lbs or 12.34% since the beginning of 2022, according to trading on a contract for difference (CFD) that tracks the benchmark market for this commodity.” (Trading Economics, 2022). Even over the course of the past two years, there has been a significant increase in the price of OJ. Which begs the question, why is orange juice becoming so expensive? Decline of Orange Juice Consumption In order to find out why this change has occurred it is necessary to address the implications that affect this product and it’s market. The price of orange juice has always fluctuated throughout its history. Through its highs and lows, the market has continued to narroly survive. One such reason can be attributed to the fluctuation of demand by its consumers. In recent years, the consumption of orange juice has decreased dramatically from people across the country. The reasons for this vary, such as not seeing the overall significance of the product, dietitians and doctors sharing research against the consumption of orange juice, and the growth of other alternatives. The largest reason is due in part to orange juice contributing to obesity through it’s high sugar contents. According to research conducted by the University of

3 Tennessee at Knoxville, “ Consumption of excess sugar, particularly in sugar-sweetened beverages, is a known contributor to both childhood and adult obesity. Many population health studies have identified sugar as a major factor in the obesity epidemic.”(University of Tennessee at Knoxville, 2019). Studies like this are often seen in articles and readings that go against the consumption of orange juice that many people subscribe to, which in turn affects the market. The COVID Pandemic The COVID-19 pandemic has heavily impacted the micro and macro economics of the U.S since its emergence in 2020. Some markets had been devastated, while others were able to capitalize due to the nature and products provided by their industry. The orange juice market is one of the industries that saw great gain because of this. According to the Citrus Industry, “COVID-19 drove an interest and purchase spike in immunity-boosting products and content, leading to a 34 percent increase of people drinking OJ. Of that group, 93 percent of consumers either plan to increase their consumption or continue drinking the same amount.”(Citrus Industry). This increased demand allowed the declining market to essentially bounce back. Even now, the threat of the Omicron variant has further increased demand. So given the law of demand, since the demand of the good has increased, the price should decrease, so why does the price of orange juice continue to rise? The answer is in the quantity of the highly sought after orange juice. Agricultural Issues The production of oranges has had a steady decrease throughout the years. Even before the pandemic, the price of oranges has steadily increased. According to data collected, “ Between 2001–02 and 2016–17, the Nielsen-measured retail U.S. orange juice market declined by 50 percent, Florida orange production declined by 70 percent and retail orange juice prices increased by 53 percent (Exhibit 1). Moreover, the orange juice market is declining at an

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