The following initial conditions exist in the "Coffee Market":
-Initial Equilibrium Price (P) : $40 per pound
-Initial Equilibrium Quantity (Q): 100 pounds
Question:
Now suppose that a new technology is invented, which improves production of coffee and increases productivity in the industry. Simultaneously, a new report is released that states that coffee is bad for your health, which decreases consumption of coffee.
Since we are not given any information about the relative size of the shifts, and thus have to assume the size of the shifts are equal, can we say with certainty what happened to the equilibrium quantity in the coffee market? Why or why not?
Yes we can say that equilibrium quantity will decrease because the decrease in demand will swamp the increase in quantity, brought about by the increase in supply. Decreases in demand are always more powerful than movements in supply in a market.
No we cannot say with certainty what exactly happened to the equilibrium quantity. The shift in supply to the right, increases supply and creates excess supply, which tends to decrease price and increase equilibrium quantity. However, there is a counter-balancing force with the simultaneous decrease in demand with the shifting of the demand curve to the left. This tends to decrease equilibrium quantity. So there are two movements in quantity moving in the opposite direction that are essentially cancelling each other out. We are not given any information about the relative size of
The following initial conditions exist in the "Coffee Market":
-Initial Equilibrium Price(P):$40 per pound
-Initial Equilibrium Quantity(Q):100 pounds
Question:
Now suppose that a new technology is invented, which improves production of coffee and increases productivity in the industry. Simultaneously, a new report is released that states that coffee is bad for your health, which decreases consumption of coffee.
Since we are not given any information about the relative size of the shifts, and thus have to assume the size of the shifts are equal, can we say with certainty what happened to the equilibrium quantity in the coffee market? Why or why not?
O Yes we can say that equilibrium quantity will decrease because the decrease in demand will swamp the increase in quantity,brought about by the increase in supply.Decreases in demand are always more powerful than movements in supply in a market.
O No we cannot say with certainty what exactly happened to the equilibrium quantity.The shift in supply to the right, increases supply and creates excess supply,which tends to decrease price and increase equilibrium quantity.However,there is a counter-balancing force with the simultaneous decrease in demand with the shifting of the demand curve to the left. This tends to decrease equilibrium quantity. So there are two movements in quantity moving in the opposite direction that are essentially cancelling each other out.We are not given any information about the relative size of
