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According to an article in the Wall Street Journal, both the quantity of organic milk sold and the price per half gallon have been falling

Economics Nov 07, 2020

According to an article in the Wall Street Journal, both the quantity of organic milk sold and the price per half gallon have been falling. Source: Heather Haddon and Benjamin Parkin, "Dairies Are Awash in Organic Milk as Consumers Jump to Alternatives," Wall Street Journal, January 2, 2018. Briefly explain whether the scenario can account for this outcome. The demand for organic milk and the supply of organic milk have both been decreasing. This scenario A. accounts for the price and quantity of organic milk both falling, irrespective of the relative size of the shifts of supply and demand. B. can't account for the outcome of the price and the quantity of organic milk both falling because the quantity will always be higher in this scenario. C. can account for the price and quantity of organic milk both falling if the decrease in demand is small enough relative to the decrease in supply. D. can account for the price and quantity of organic milk both falling if the decrease in demand is large enough relative to the decrease in supply. The demand for organic milk and the supply of organic milk have both been increasing. This scenario A. can't account for the outcome of the price and the quantity of organic milk both falling because an increase in demand and supply will both push the price of organic milk higher. B. can't account for the outcome of the price and the quantity of organic milk both falling because an increase in demand and supply will both push the quantity of organic milk higher. C. can account for the price and quantity of organic milk both falling. D. can't account for the outcome of the price and the quantity of organic milk both falling because an increase in demand and supply will result in an ambiguous change (dependent on the relative size of the shifts in demand and supply) for the quantity of organic milk.

Expert Solution

1 - Option D

Can account for the price and quantity both falling if decrease in demand is large enough than decrease in supply

This will lead to the greater leftward shift in demand curve leading to fall in price and quantity. If supply decrease more , price will rise.

2 - Option B

Cant account for the outcome of price and quantity both falling because the increase in demand and supply will push the quantity higher

The quantity will rise in both cases. If supply rises more , price will fall and if demand rises more , price will rise. Quantity will not fall in any case. Hence Option B will be correct

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