39 39 Consider the retail market for bags of ground coffee I

3.9

3.9. Consider the retail market for bags of ground coffee. If coffee wholesalers expect that the retail price of coffee will increase significantly in the future, then the current of ground coffee will coffee consumption, then the (demand forl supply of) bags of ground coffee will decrease). If these effects happen together, then effect on equilibrium price will be increase a decrease / indeterminate) and the effect on equilibrium quantity will be increase a decrease 1 indeterminate (demand for/ supply of) bags (increase / decrease). If a new study highlights the health benefits of (increase/ (an (an

Solution

When a supplier or producer expects that price of a good that he produces or supplies will rise in future then he reduces the current supply of the good.

If consumption of a good provides health benefits then in such case demand for such good gets increase.

So, in given case, simultaneous decrease in supply and increase in demand is happening.

When this happens, price of good increases for sure. However, impact on quantity is indeterminate. It depends on the magnitude of change in demand and supply.

If increase in demand is more than the decrease in supply then equilibrium quantity increases and vice-versa.

So,

If coffee wholesalers expect that the retail price of coffee will increase significantly in the future, then the current supply of bags of ground coffee will decrease.

If a new study highlights the health benefits of coffee consumption, then the demand for bags of ground coffee will increase.

If these effects happen together, then effect on equilibrium price will be an increase and the effect on equilibrium quantity will be indeterminate.