Question

Predict, using demand and supply analysis, the effect on the market equilibrium price (P*). A type of water beverage (a super-fruit flavor of your own choice) if consumers received credible news that: a) consuming this beverage increases your mental and physical performance and longevity, b) the key ingredient (the super-fruit) in the production of your beverage became more scarce and expensive on its market.

Answer 1

a) In the first condition, the positive news of such as the drink increasing the mental and physical health will increase the demand of the drink. It will shift the demand curve to the right and the new equilibrium in the market will be at a higher price and higher output.

b) In this case the input cost of making the drink has increase and an increase in the input cost of the good will increase the supply cost of the good. It will shift the supply curve to the left, the new equilibrium will be at a higher price and lower quantity output.

THe price will increase in both cases.