What would happen to the equilibrium price and quantity of coffee if the wages of coffee-bean pickers fell and the price of tea fell?
A)Price would fall, and the effect on quantity would be ambiguous.
B)Price would rise, and the effect on quantity would be ambiguous.
C)Quantity would fall, and the effect on price would be ambiguous.
D)Quantity would rise, and the effect on price would be ambiguous.

Question

Quizplus · Accepted Answer

A decrease in the wages of coffee-bean pickers would lower the production costs for coffee, leading to an increase in supply. This would typically result in a lower equilibrium price for coffee. However, if the price of tea (a substitute for coffee) also falls, some consumers might switch from coffee to tea, reducing the demand for coffee. This could further lower the price of coffee. The overall effect on quantity is ambiguous because the increase in supply (due to lower production costs) and the decrease in demand (due to lower tea prices) have opposite effects on the quantity of coffee sold.

What Would Happen to the Equilibrium Price and Quantity of Coffee