10. What would happen to the equilibrium price and quantity of lattes if coffee

Question

10. What would happen to the equilibrium price and quantity of lattes if coffee shops began using a machine that reduced the amount of labor necessary to produce steamed milk, which is used to make lattes, and scientists discovered that lattes cause heart attacks?

Both the equilibrium price and quantity would increase.

Both the equilibrium price and quantity would decrease.

The equilibrium price would decrease, and the effect on equilibrium quantity would be

ambiguous.
d. The equilibrium quantity would decrease, and the effect on equilibrium price would be ambiguous.

Explanation / Answer

Use of the cost-cutting machine will decrease input cost, so the coffee shops will increase supply. Price will decrease.

When it's known that latte causes heart attack, demand will decrease & price will decrease.

So, in both cases, price decreases, but net effect on quantity is ambiguous.

The 3rd option is correct.

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