What would happen to the equilibrium price and quantity of peanut butter if the price of peanuts went up, the price of jelly (a complementary good) fell, fewer firms decided to produce peanut butter, and health officials announced that eating peanut butter was good for you?

Question

Quizplus · Accepted Answer

The various changes in the market will have conflicting effects on the equilibrium price and quantity of peanut butter. An increase in the price of peanuts and a decrease in the price of jelly will both tend to decrease the quantity demanded of peanut butter, thus decreasing the equilibrium quantity; however, a decrease in the supply of peanut butter due to fewer firms producing it would tend to increase the equilibrium price. Additionally, the announcement that peanut butter is good for you may increase demand for it, raising both the equilibrium price and quantity. Therefore, the overall effect on both price and quantity cannot be determined with the given information.

What Would Happen to the Equilibrium Price and Quantity of Peanut