Question

An increase in the demand for peanuts due to changes in consumer tastes, accompanied by an increase in the supply of peanuts as a result of favorable growing conditions, will result in a. an increase in the equilibrium quantity of peanuts and no change in the equilibrium price. b. an increase in the equilibrium quantity of peanuts; the equilibrium price may increase or decrease. c. an increase in the equilibrium price of peanuts; the equilibrium quantity may increase or decrease. d. an increase in the equilibrium price of peanuts and no change in the equilibrium quantity

Answer 1

Answer:

B

Explanation:

When there is an increase in demand or supply due to factors different from prices we know curves shift to the right, the opposite if there is a decrease: curves shift to the left. We could have only demand shifts, only supply shifts or both. In this case, both are increasing for instance both shift to the right. If we draw demand and supply curves (shown in the figures attached) we know for sure that equilibrium prices and quantities will change. As it is shown in both figures, equilibrium quantity changed and always increased (q2>q1) but it isn´t clear what happens with prices because it depends on the magnitude of the supply or demand shift. Figure 1 shows a high magnitude shift and the equilibrim price decreased (p2<p1) but Figure 2 shows a lower magnitude shift and the equilibrium price increased (p2>p1). That is why, if both supply and demand increase eq. quantity will always increase but prices could increase or decrease.