Suppose the market for "soda X" is in equilibrium. If the FDA announced today that this soda has been proven to cause a fatal disease, what would be most likely to happen to the equilibrium price and equilibrium quantity of soda X?
A) Price increases and quantity increases
B) Price decreases and quantity increases.
C) Price increases and quantity increases.
D) Price decreases and quantity decreases
E) No change in price and quantity

Question

Quizplus · Accepted Answer

The announcement by the FDA would cause a decrease in the demand for soda X as consumers become aware of the health risks associated with it. This decrease in demand would shift the demand curve leftward, leading to a lower equilibrium quantity and a lower equilibrium price for soda X. Therefore, the correct answer is D as both price and quantity would decrease.

Suppose the Market for "Soda X" Is in Equilibrium