a. What effect will each of the following have on the DEMAND for coffee (i.e. In
ID: 2506060 • Letter: A
Question
a. What effect will each of the following have on the DEMAND for coffee (i.e. Increase Demand, Decrease Demand, or NO CHANGE)?
i. There is an increase in the price of coffee.
ii. There is an increase in the price of tea, which consumers view as a substitute for coffee.
iii. There is an increase in consumer incomes, assuming coffee is a normal good.
iv. There is a decrease in the number of consumers who buy coffee.
B. a. What effect will each of the following have on the SUPPLY of soybeans? (i.e. Increase Supply, Decrease Supply, or NO CHANGE)?
i. There is an increase in the amount of subsidies given to soybean producers.
ii. There is a decrease in the price of fertilizer, an input needed to produce soybeans.
iii. There is an increase in the price of corn, an alternative good that soybean producers could produce instead of soybeans (i.e. assume corn is a substitute in production for soybeans).
iv. Soybean producers expect the price of soybeans to substantially fall in the future.
Please also give me explanations as to why.
Explanation / Answer
i)
It will DECREASE demand, as price is inversely proportional to demand.
ii)
It will INCREASE demand, as when the price of substitute increases, people will consume more of coffee.
iii)
It will INCREASE demand, as coffee being a Normal Good, increase in income will lead to more consumption.
iv)
It will DECREASE demand, as the consumption falls due to fall in customers.
B
i)
It will INCREASE supply, as the cost of production decreases due to subsidies.
ii)
It will INCREASE supply, as the cost of production decreases due to fall in fertilizer price.
iii)
It will DECREASE supply, as farmers will produce corn, which is more profitable.
iv)
It will DECREASE supply, as farmers will get less revenue from it.
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