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 equilibrium price.The equilibrium price in this case will increase by

Question

Quizplus · Accepted Answer

At the initial equilibrium, we can set QD = QS to find the equilibrium price and quantity:
700 - P = 400 + 2P
300 = 3P
P = 100

So the initial equilibrium price is $100 per unit of green tea, and the equilibrium quantity is:
Q = 700 - P = 700 - 100 = 600 units

Now the demand curve shifts to QD = 2(700 - P) = 1400 - 2P, since the quantity demanded doubles at the initial price. The supply curve remains the same.

We can set the new quantity demanded equal to the new quantity supplied to find the new equilibrium price and quantity:
1400 - 2P = 400 + 2P
1000 = 4P
P = 250

So the new equilibrium price is $250 per unit of green tea, which is a 150% increase from the initial price of $100. However, the question asks for the percentage increase, which is (250-100)/100 = 150% increase or 200% of the initial price. Therefore, the answer is D) 200%.

Suppose That the Demand and Supply Curves for Green Tea