Answered

Determine how the equilibrium price and equilibrium quantity in the market for coffee changes if the price of tea, a substitute for coffee, decreases, and due to better weather, the price of coffee beans also decreases. Equilibrium price Equilibrium quantity

Answer :

Answer:

Equilibrium price = Decreases

Equilibrium quantity = Indeterminate

Explanation:

Here, we suppose that tea and coffee are substitute goods and we know that substitute goods have a positive cross price elasticity of demand.

So, if there is a fall in the price of tea then as a result the demand for coffee decreases which shifts the demand curve of coffee leftwards.

And, there is a fall in the price of coffee beans due to the better weather condition and coffee beans are used as an ingredient for producing coffee.

Hence, there is a fall in the cost of production of coffee which increases the supply of coffee and shifts the supply curve of coffee rightwards.

Therefore, there is a fall in the equilibrium price level of coffee and the effect of these shifts on the equilibrium quantity is indeterminate because that will be dependent upon the magnitude of the shifts of both the curves.

Economic equilibrium is a state in which economic pressures such as demand and supply are balanced and the values of economic variables do not change in the absence of external influences.


The change in shift of equilibrium:

  • Equilibrium price = Decreases
  • Equilibrium quantity = Indeterminate

The reasons for the changes:

  • Pretend that tea and coffee are substitute commodities, and that substitute goods have a positive cross-price elasticity of demand.

  • As a result, if the price of tea decreases, the demand for coffee decreases, shifting the demand curve of coffee to the left.

  • Additionally, due to the improved weather conditions, the price of coffee beans has decreased, and coffee beans are utilized as an ingredient in the production of coffee.

  • As a result, the cost of producing coffee decreases, increasing supply and shifting the supply curve of coffee to the right.

As a result, the equilibrium price level of coffee has fallen, and the effect of these movements on the equilibrium quantity is unknown because it depends on the magnitude of the shifts in both curves.

For more information about equilibrium, refer below:

https://brainly.com/question/17779344?referrer=searchResults

Other Questions