Use the following information to answer the next two questions. Consider a compe

Question

Use the following information to answer the next two questions. Consider a competitive market for grapes with supply and demand given by the following: Qo 1500-5p Qs-10p+20R where R is the annual rainfall in inches. 1 5. An increase in rainfall (R) will a. shift demand left b. shift demand right c. shift supply left d. shift supply right 6. An increase in rainfall will a. decrease the equilibrium price and decrease the equilibrium quantity b. decrease the equilibrium price and increase the equilibrium quantity c. increase the equilibrium price and decrease the equilibrium quantity d. increase the equilibrium price and increase the equilibrium quantity

Explanation / Answer

5.

An increase in rainfall (R) will:

d. shift the supply right.

This is because, as there is a direct relationship between quantity supplied and rainfall (from the equation), so an increase in rainfall will increase supply.

6.

An increase in rainfall will:

b. decrease the equilibrium price and increase the equilibrium quantity.

As the supply curve shifts to the right, with no change in demand curve, there will be a decrease in equilibrium price and an increase in quantity.

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