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38 CHAPTER 2 DEMAND AND SUPPLY ANALYSIS

S

$10.00
Price (dollars per kilograms) D (I = 5)
$9.50

D (I = 10)
1

0 75 100 2
Quantity (millions of kilograms per year)

FIGURE 2.9 Equilibrium in the Market for Aluminum
The market equilibrium initially occurs at a price of $10 per kilogram and a quantity of
100 million kilograms. When average income goes down (i.e., when we move from I 10
to I 5), the demand curve for aluminum shifts leftward. The new equilibrium price is
$9.50 per kilogram, and the new equilibrium quantity is 75 million kilograms.

APPLICA TION 2.1
The Valentine’s Day Effect Figure 2.11 depicts the market equilibrium in
the U.S. market for fresh-cut roses in the early
If you have ever bought fresh-cut roses, you may have 1990s. During this period, wholesale prices for red
noticed that their price varies considerably during the hybrid tea roses were ordinarily about $0.20 per
year. In particular, the price you pay for fresh-cut stem. 5 Every year, though, the market changes
roses––especially red roses––around Valentine’s Day is around Valentine’s Day. During the days before
usually three to five times higher than at other times Valentine’s Day, demand for red roses increases dra-
during the year. Figure 2.10 illustrates this pattern by matically, resulting in a rightward shift in the de-
showing the prices and quantities of fresh-cut roses at mand curve for roses from D 1 to D 2 . This rightward
two different times of the year: February and August shift occurs because around Valentine’s Day, people
4
in each of three years, 1991, 1992, and 1993. Are the who do not ordinarily purchase roses want to buy
high prices of roses at Valentine’s Day a result of a con- them for their spouses or sweethearts. The right-
spiracy among florists and rose growers to gouge ro- ward shift in demand increases the equilibrium price
mantic consumers? Probably not. This pricing behavior to about $0.50 per stem. Even though the price is
can best be understood as an application of compara- higher, the equilibrium quantity is also higher than it
tive statics analysis. was before. This outcome does not contradict the

4 The data in Figure 2.10 are derived from Tables 12 and 17 of “Fresh Cut Roses from Colombia and
Ecuador,” Publication 2766, International Trade Commission (March 1994). The data for February
actually consist of the last two weeks of January and the first two weeks of February.
5 These are wholesale prices (i.e., the prices that retail florists pay their suppliers), not the retail prices
paid by the final consumer.