Question

(A) Suppose there exists a market for coffee that is in equilibrium at 500 cups brewed per week for $3/cup. Now suppose the demand for coffee shifts outward (to the right). What are some reasons this shift might have occurred?
(B) Now suppose that after the demand curve shifted, the supply curve shifts inward (to the left). What are some reasons this might have occurred?
(C) Now that both the demand and the supply curves have shifted, compare the new equilibrium to the original equilibrium of 500 cups for $3 each. Are the new equilibrium price and quantity greater than, less than, or equal to the original equilibrium? Do you have enough information to know for sure?

Answer 1

Answer:

Explanation:

A ) Demand for coffee may increase due to many reasons , like due to decrease in price ( due to price effect )  , increase in price of tea ( due to substitution effect) , due to seasonal change like in the cold season ,  its demand increases.

B) Supply of coffee may increase due to rise in its price , due to more company coming into market , technological improvement in plant and machinery etc.

C ) The new equilibrium price may be equal to , less than or greater than $3 each . If shift in both the lines have same magnitude , price remains stagnant . If shift in supply line is more , price decreases. If shift in demand curve is more , price increases.