Question

Consider the market for coffee beans. suppose that the prices of all other caffeinated beverages go up 30 percent while at the same time a new fertilizer boosts production at coffee plantations dramatically. which of the following best describes what is likely to happen to the equilibrium price and quantity of coffee beans?
a) the equilibrium price may rise or fall but the equilibrium quantity will rise for certain.
b) both the equilibrium price and the quantity will rise.
c) the equilibrium price will rise but the equilibrium quantity will fall.
d) neither the price change nor the quantity change can be determined for certain.
e) none of the answers are correct.

Answer 1

Answer:

a) the equilibrium price may rise or fall but the equilibrium quantity will rise for certain.

Explanation:

For the price there are two forces pushing:

one that the increase in caffeinated beverages prices which requires coffee beans as input increases will make possible to pay more for the coffee beans

But also as the production can increase due to the increase in technology it may be cheaper to produce the coffee bean, pushing the price down.

The net effect of this with no more calculaton is uncertain.

What is clear is that because the product which the coffee eans price increases, there will be more demand for themand will ebe possible to meet it as there is also an icnrease in productivity. This makes the quantity of equilibrium clearly going up.