Question

1. Suppose a freeze in Brazil damages Brazil's coffee crop. Explain the effects on equilibrium price and quantity in (a) the coffee market, (b) the tea market, and (c) the cream market.

Answer 1

a) Since Coffee crop damaged which will reduce the coffee supply in the market then there will be excess demand so that Equilibrium Price rises and Equilibrium Quantity decreases.

b) Since Coffee Equilibrium Price rises and Equilibrium Quantity decreases then, tea is the substitute for coffee so that demand of tea will rise then there will be excess demand so that Equilibrium Price rises and Equilibrium Quantity rises.

c) Cream unrelated good of coffee then its price and quantity remain constant.