Question

Consider the market for coffee.

Suppose that, as part of an international trade agreement, the U.S. government reduces the tariff on imported coffee. At the same time, suppose the National Institutes of Health publishes a study finding that coffee drinking reduces the probability of getting colon cancer.

What will the combined impact be on the equilibrium price and quantity of coffee? Explain your reasoning. Be sure to state which curve(s) shift and it what direction.

Answer 1

As the US has reduced the tariff it will shift the supply curve because the supply of the coffee has increased, It will reduce the price and increase the quantity.

If the report suggest that coffee decrease the colon cancer risk that will increase the demand and shift the demand curve to the right, the new price will be higher and quantity higher.

Combined the quantity demand and supply will be higher than before but the price will be indeterminate because the net affect can not be calculated. if the supply has increased more then the price will be lower and if the demand has increased more compared to supply then the price will be higher.