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Suppose a drought in Columbia destroys a significant portion of the nation's coffee crop
Suppose a drought in Columbia destroys a significant portion of the nation's coffee crop. How would this change the equilibrium price and quantity of coffee within the supply and demand framework?
a. Equilibrium price will increase and the equilibrium quantity will decrease.
b. Equilibrium price and quantity will both increase.
c. Equilibrium price and quantity will both decrease.
d. Equilibrium price will decrease and the equilibrium quantity will increase.
Expert Solution
Option a. Equilibrium price will increase and the equilibrium quantity will decrease is correct
This option is correct because in the case of drought, the supply from producer reduces but demand of consumer remains same. The supply reduces due to more cost incurred in production. It impact equilibrium price indirectly that means the price has to increase and it impact equilibrium quantity directly that means the quantity has to be decreased.
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