Assume that in the market for tea there is a downward sloping demand curve and an upward sloping supply curve. Suppose that drought occurs in Sri Lanka, the world’s major tea growing area. In addition, scientists in Australia discover that drinking tea can improve an individual’s health. In this situation in Australia we would expect:Group of answer choicesThe equilibrium price of tea to increase and equilibrium quantity may go up or down or remain the same.The equilibrium price of tea to decrease and equilibrium quantity may go up or down or remain the same.The equilibrium quantity of tea to increase and equilibrium price may go up or down or remain the same.The equilibrium quantity of tea to decrease and equilibrium price may go up or down or remain the same.None of the above
Question
Assume that in the market for tea there is a downward sloping demand curve and an upward sloping supply curve. Suppose that drought occurs in Sri Lanka, the world’s major tea growing area. In addition, scientists in Australia discover that drinking tea can improve an individual’s health. In this situation in Australia we would expect:Group of answer choicesThe equilibrium price of tea to increase and equilibrium quantity may go up or down or remain the same.The equilibrium price of tea to decrease and equilibrium quantity may go up or down or remain the same.The equilibrium quantity of tea to increase and equilibrium price may go up or down or remain the same.The equilibrium quantity of tea to decrease and equilibrium price may go up or down or remain the same.None of the above
Solution
The correct answer is: The equilibrium price of tea to increase and equilibrium quantity may go up or down or remain the same.
Here's why:
-
The drought in Sri Lanka, a major tea-growing area, would likely decrease the supply of tea. This is represented by a leftward shift of the supply curve. When supply decreases, the equilibrium price generally increases.
-
The discovery in Australia that drinking tea can improve health would likely increase the demand for tea. This is represented by a rightward shift of the demand curve. When demand increases, the equilibrium quantity generally increases.
However, because both of these events are happening at the same time, their effects on the equilibrium quantity may offset each other. The increase in demand could lead to an increase in quantity, but the decrease in supply could lead to a decrease in quantity. Therefore, without more specific information, we can't definitively say what will happen to the equilibrium quantity. It could go up, go down, or remain the same. But we can say with confidence that the equilibrium price of tea will increase.
Similar Questions
Assume that a recent drought in Brazil destroys half the world's coffee beans. If demand for coffee beans is downward sloping and supply is upward sloping, ceteris paribus, we would expect to observe: Group of answer choices An increase in equilibrium price and a decrease in equilibrium quantity. An increase in equilibrium price and an increase in equilibrium quantity. A decrease in equilibrium price and a decrease in equilibrium quantity. A decrease in equilibrium price and an increase in equilibrium quantity. None of the above
When a demand curve shifts to the rightMultiple Choicedemand has increased, so equilibrium price increases, and equilibrium quantity increases.demand has decreased, so equilibrium price decreases, and equilibrium quantity decreases.demand has increased, so supply also shifts to the right, and the equilibrium price increases.demand has decreased, so supply also shifts to the right, and the equilibrium price decreases.
Consider the following information on supply and demand model of theworld tea market.Price per kilo (Kshs) QuantitysuppliedQuantitydemanded26.6025.9025.2024.5023.801,5001,0007006005505256007009001,200Required to:1. Is there a shortage or a surplus when the price is: Kshs 26.60?Kshs23.80 (3marks)2. What is the market equilibrium of the world tea market? (2marks)3. Graph the supply curve and the demand curve of the world tea market(2marks)d) List the three elements of the supply and demand model.
If the demand for a product increases, then we would expect equilibrium priceGroup of answer choicesto increase and equilibrium quantity to decrease.to decrease and equilibrium quantity to increase.and equilibrium quantity both to increase.and equilibrium quantity both to decrease.
In a competitive market, if the existing price is below the equilibrium price, market forces will drive the price:Multiple Choiceup and quantity supplied up.down and demand down.up and supply up.up and quantity supplied down.
Upgrade your grade with Knowee
Get personalized homework help. Review tough concepts in more detail, or go deeper into your topic by exploring other relevant questions.