Question

A new study is released showing that blueberries have more health benefits than previously known. Simultaneously, a drought in blueberry-growing areas causes bushes to bear less fruit. After both of these shocks, the market saw fewer blueberries being traded at a higher price. So, demand ______, supply ______, and the magnitude of the demand shift was _______ the magnitude of the supply shift.

a. increased, increased, greater than

b. increased, decreased, less than

c. decreased, increased, less than

d. increased, decreased, greater than

I know the answer is either b or d, but do not know how to figure out if the magnitude of the demand shift was less than or greater than the magnitude of the supply shift.

Answer 1

b. increased, decreased, less than

When study shows blueberries are healthier than demand of it increases. Drought in blueberry growing areas causes decrease in supply of it.

Now it is given that after these two events, price of blueberry increases while equilibrium quantity falls. So, firstly assume that increase in demand is less than decrease in supply.

In this case, we get decrease in quantity and increase in price. So, it is clear that increase in demand will be less than the decrease in supply in blueberry market.