Question

Suppose that a major drought causes a 30 percent reduction in the peanut harvest. If there is no change in demand, this event would cause a _____ at the original equilibrium price, and the equilibrium price will therefore _____ and the equilibrium quantity will _____. surplus; fall; fallsurplus; fall; riseshortage; rise; fallshortage; rise; rise

Answer 1

Answer:

The correct answer is: shortage; rise; fall.

Explanation:

Unfavorable weather causes a reduction in the production of peanuts. This will cause the supply of peanuts to decrease. The supply curve for peanuts will shift leftwards.

This will cause a shortage at the current price as the quantity supplied will be less than the quantity demanded. As a result, the equilibrium price will increase.

With the shift in the supply curve and an increase in the price level, the equilibrium quantity will decline.