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 price will decrease; the effect on quantity is ambiguous. b. Equilibrium quantity will increase; the effect on price is ambiguous. c. Equilibrium quantity will decrease, equilibrium price will increase. d. Equilibrium price will increase; the effect on quantity is ambiguous.

Question

Michael Anderson

Business

13 May, 21:14

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 price will decrease; the effect on quantity is ambiguous. b. Equilibrium quantity will increase; the effect on price is ambiguous. c. Equilibrium quantity will decrease, equilibrium price will increase. d. Equilibrium price will increase; the effect on quantity is ambiguous.

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Answers (1)

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Virginia Kennedy · Answer 1

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

Explanation:

Apples are used to make apple pies so a decrease in price of apple price is a reduction in input price for apple pie production.

This will result in a reduction in the equillibrum price of apple pies. Customers will buy at a cheaper price.

The effect on equillibrum quantity is unclear because the price reduction should increase quantity supplied, but the news of a future increase in the price of apple pies may cause suppliers to reduce quantity supplied so that they sell at higher prices and make more profit.