Question

Coffee bean merchants notice that coffee prices are at a historic low today but they expect the price of coffee beans to increase in the next six month, how will the expectations of an increase in future prices most likely affect the supply of coffee beans on the market today?
1) supply will decrease
2)supply will increase
3)there will be a movement along the same supply curve to a new higher quantity supplied
4) there will be a movement along the same supply curve to a new lower quantity supplied
5) there is no change in supply

Answer 1

Answer:

1. Supply will decrease

Explanation:

Due to the basic economic principle that when supply superceeds the demand for goods and services, the prices of such goods and services fall. As a result of this, and an expected increase in future prices, the supply of coffee beans by coffee merchants to the markets will decrease.

This is because the merchants want to receive higher profits and to do so, they will withhold supply to sell in the next six months when the price is higher.

Answer 2

Answer:

1) supply will decrease

Explanation:

When both supplier and consumer expectations change because a price change is anticipated, their supply and demand curves shift.

When suppliers expect an increase in the price of key inputs, the supply curve will shift to the left, reducing the quantity supplied ad every price level. Inversely, when consumers expect an increase in future prices, the current demand curve will shift to the right, increasing the quantity demanded at every price level.  

Both shifts in the supply curve and demand curve have one thing in common, they will increase the equilibrium price.