Question

Prices of microbrewery beer (assume that this is a normal good) have risen steadily in recent years. Over this same period, prices for fermenting vats use in beer making have also risen and consumer incomes have fallen. Which of the following best explains the rising prices of microbrewery beer?

Answer 1

Answer:

Since microbrewery beer is considered a normal good, opposing forces are currently determining its price.

The price of fermenting vats, which are a key input in the supply of microbrewery beer, have increased. This increase in a key input will shift the supply curve to the left making microbrewery beer more expensive at any demand level, reducing the supply of the product.

A decrease in consumer income will decrease the demand and will shift the demand curve to the left, which should decrease the price of the product.   

Since the leftward shift of the supply curve is greater than the leftward shift of the demand curve, the price new equilibrium price will increase.