contestada

The supply of coffee has increased twice as much as the demand for coffee. As a result, we can predict a(n):

(A) decrease in equilibrium price, but equilibrium quantity is indeterminate.
(B) decrease in equilibrium price and equilibrium quantity.
(C) increase in equilibrium price, but equilibrium quantity decreases.
(D) decrease in equilibrium price, but equilibrium quantity increases.

Respuesta :

Answer:

Option (D) is correct.

Explanation:

Suppose there is one good coffee.

If the supply of coffee increases two times as much as the increase in the demand for coffee. So, the magnitude of shift in supply curve is double than the magnitude of shift in the demand curve.

Hence, an increase in the supply of coffee results in a rightward shift of the supply curve and an increase in demand for coffee shifts the demand curve rightwards.

As there is a difference in the magnitude of shifts in both the curves, so, there is a fall in the equilibrium price and an increase in the equilibrium quantity.

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