Question

Please, consider the following scenarios. First, illustrate the following changes in market conditions with supply or demand curves using a diagram. Second, state how the final equilibrium price and quantity compare to the initial one:

d. Consider the market for coffee. First, wages of workers who pick coffee beans rise. At the same time, the price of brown sugar (a complement for coffee) decreases. What is the effect of these changes on the equilibrium price and quantity of coffee? e. Consider the market for coffee. The price of tea increases. At the same time, technological innovations lead to a reduction in the cost of coffee production. What is the effect of these changes on the equilibrium price and quantity of coffee?

Answer 1

Ans1)Increase in wages of workers, increases the input cost .It results in decrease in supply.

Likewise, fall in the price of complementary good( brown sugar ),increases its demand..

The initial and new equilibrium price and quantity are shown in below diagram-------

- - Supply Demand decreases Increases PRICE OF COFFEE Coffet) QUANTITY SUPPLIE?

Initial equilibrium point E changes to new equilibrium point ,E¹ due to leftward shift ( decrease) in supply curve (S¹), and rightward shift of demand curve D¹.

Equilibrium price (New)-------- rises( from p to p¹)

Equilibrium quantity (New)--------no change ( Q)

Ans 2)

With the increase in the price of substitute(tea) ,demand for coffee increase ,while ,with reduction in cost due to improvement in technology ,the supply will increase,

The below diagram shows the initial equilibrium in and changes in equilibrium quantity and price-------

In the above diagram ,initial equilibrium point E changes to E¹, due to rightward shift of both supply curve ( increase) and demand curve ( increase).

COFFEE) QUANTITY SUPPI DEMAND & SUPPLY INCRESES PRICE OF COFFEE + -- QUANTITY (COFFEE)

Change in equilibrium quantity ( from Q to Q¹) ------ increase

Change in equilibrium price(p) --------- no change