Question

The price of apples used to make apple pies has decreased. At the same time, people expect the price of apple pies increase significantly in the future. Given these two effects, what will happen to the current equilibrium quantity and price of apple pies?

a.
Equilibrium quantity will increase; the effect on price is ambiguous.

b.
Equilibrium price will increase; the effect on quantity is ambiguous.

c.
Equilibrium price will decrease; the effect on quantity is ambiguous.

d.
Equilibrium quantity will decrease, equilibrium price will increase.

Answer 1

Answer:

A. Equilibrium quantity will increase; the effect on price is ambiguous.

Explanation: Several factors are known to be having impact on the Quantity demanded and the price of goods sold,one of the factors includes when Consumers speculate that the price of goods and services will increase or decrease in the future.

WHEN PEOPLE SPECULATE THE THE PRICE OF APPLE PIES WILL INCREASE IN THE FUTURE,THEY WILL ENGAGE IN PANIC BUYING WHICH WILL INCREASE THE QUANTITY DEMANDED AND THE EFFECT ON PRICE WILL BE AMBIGUOUS.

Answer 2

Answer:

A)  Equilibrium quantity will increase; the effect on price is ambiguous.

Explanation:

the demand and supply curves of apple pies will shift due to these events:

• a decrease in the price of apples will shift the supply curve to the right, increasing the total quantity supplied at every price level ⇒ QUANTITY↑ while PRICE↓
• consumer expectations will shift the demand curve to the right, increasing the total quantity demanded at every price level ⇒ QUANTITY↑ and PRICE↑

Both events will cause the equilibrium quantity to increase, but one event will decrease the price, while the other will increase it. For sure we know that the equilibrium quantity will increase, but the effect on the equilibrium price is unknown.