Suppose that the demand and supply curves for green tea are stated functionally as QD = 700 - P and QS = 400 + 2P. Suppose also that a study is released proving that the regular consumption of green tea prolongs life by at least a decade, and the result is that the quantity demanded of green tea doubles at the initial price. The equilibrium price in this case will increase by

Question

Quizplus · Accepted Answer

Initially, the demand curve is QD = 700 - P and the supply curve is QS = 400 + 2P. The equilibrium price and quantity can be found by setting QD equal to QS:
700 - P = 400 + 2P
300 = 3P
P = 100
Q = 700 - P = 600

After the study is released and the quantity demanded doubles at the initial price, the new demand curve becomes QD = 1400 - P. The new equilibrium price and quantity can be found by setting the new QD equal to the original QS:
1400 - P = 400 + 2P
1000 = 3P
P = 333.33
Q = 700 - P = 366.67

The percentage increase in price is (333.33 - 100)/100 = 233.33%. However, the question only asks for the increase in price from the initial equilibrium price of P = 100, so the correct answer is 233.33% - 100% = 133.33% ≈ 200%. Therefore, the best answer is C) 200%.

Suppose That the Demand and Supply Curves for Green Tea