All grapefruit juice producers have decided to blend tangerine juice with the grapefruit juice. This blend results in a higher cost of production, but studies show that consumers prefer the taste of the blend to straight grapefruit juice. What will happen to the equilibrium price and quantity of the new ʺblendedʺ grapefruit juice now that it costs more to produce but consumers like it better?

Question

Quizplus · Accepted Answer

Since the cost of production has increased due to blending tangerine juice with grapefruit juice, the producers will have to charge a higher price for the new blended juice. However, it is uncertain how much of an increase in price will be necessary to cover the increased cost of production. Additionally, while consumers prefer the taste of the blend, the higher price may deter some from purchasing it, potentially causing a decrease in demand. Therefore, the effect on quantity is uncertain. Hence, the correct choice is (A) The price rises, but the effect on the quantity is uncertain.

All Grapefruit Juice Producers Have Decided to Blend Tangerine Juice