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A new study on the health benefits of vitamin C has caused more people to prefer orange juice
A new study on the health benefits of vitamin C has caused more people to prefer orange juice. At the same time, a freeze in Florida has devastated the orange crop. Given these two effects, what can we say about the equilibrium price and quantity of orange juice?
a. Equilibrium quantity will decrease, and equilibrium price will increase.
b. Equilibrium price will decrease, and the effect on quantity is ambiguous.
c. Equilibrium price will increase, and the effect on quantity is ambiguous.
d. Equilibrium quantity will increase, and the effect on price is ambiguous.
Expert Solution
A new study on the health benefits of vitamin C has caused more people to prefer orange juice. At the same time, a freeze in Florida has devastated the orange crop. Given these two effects, what can we say about the equilibrium price and quantity of orange juice? c. Equilibrium price will increase, and the effect on quantity is ambiguous.
Demand will increase because of the new perceived benefit. At the same time, the supply will be reduced. Either one of those two factors would cause the price to rise. It is not possible to determine what will happen to the quantity, because that depends on the slope of the demand curve.
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