Question

According to a supply and demand model for apples, if the average household income decreases at the same time ten apple orchards go out of business, one would expect the: a. equilibrium quantity of apples in the market to be indeterminate and the equilibrium price of apples to increase. b. equilibrium price of apples to be indeterminate and the equilibrium quantity of apples in the market to increase. c. equilibrium quantity of apples in the market to decrease and the equilibrium price of apples to be indeterminate. d. equilibrium quantity of apples in the market to decrease and the equilibrium price of apples to stay the same. e. equilibrium price of apples to increase and the equilibrium quantity of apples in the market to decrease.

Answer 1

Option E. Based on the law of supply and demand if orchards go out of business and income decreases, the  equilibrium price of apples to increase and the equilibrium quantity of apples in the market to decrease.

What would cause the prices of apple to increase?

Due to scarcity, the prices of apple would increase in the market. People would have to pay more to get the product which is now scarce.

When goods are few in the market they become more expensive than they were before.

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