3. Consider the market for coffee beans. If the prices of all other caffeinated beverages go up 30 percent while at the same time a new fertilizer boosts production at coffee plantations dramatically:

a. the equilibrium price and quantity of coffee beans will both increase

b. the equilibrium price will rise and the equilibrium quantity will rise

c. the equilibrium price will fall as will the equilibrium quantity

d. the equilibrium price may rise or fall, but the equilibrium quantity will rise for certain.

Question

3. Consider the market for coffee beans. If the prices of all other caffeinated beverages go up 30 percent while at the same time a new fertilizer boosts production at coffee plantations dramatically:

a. the equilibrium price and quantity of coffee beans will both increase

b. the equilibrium price will rise and the equilibrium quantity will rise

c. the equilibrium price will fall as will the equilibrium quantity

d. the equilibrium price may rise or fall, but the equilibrium quantity will rise for certain.

BlackTom AI · Accepted Answer

An increase in the price of substitute goods raises demand for coffee; a productivity-improving fertilizer shifts the coffee supply curve rightward.

1) Relevant knowledge points and concepts
- Demand shifts right (increase) when a substitute’s price rises: consumers switch to coffee, raising demand at every price.
- Supply shifts right (increase) when production gets cheaper or more productive (fertilizer): producers supply more at every price.
- When demand and supply both increase, equilibrium quantity unambiguously rises; the effect on equilibrium price is ambiguous and depends on the relative magnitudes of the shifts.

2) Step-by-step reasoning
- Demand shift: D0 → D1 (right).
- Supply shift: S0 → S1 (right).
- Both rightward shifts increase equilibrium quantity because each shift by itself raises quantity, and the combined effect is additive.
- Equilibrium price: demand increase tends to raise price; supply increase tends to lower price. The net change in price depends on which shift is larger.

3) Calculations with intermediate steps (linear example)
Let demand: P = A − BQ, supply: P = C + DQ.
Initial equilibrium Q0 = (A − C)/(B + D).
After shifts: A′ = A + ΔA (demand up), C′ = C − ΔC (supply right). New Q1 = (A′ − C′)/(B + D) = (A − C + ΔA + ΔC)/(B + D). Since ΔA + ΔC > 0, Q1 > Q0 (quantity rises for certain).
For price, compute P1 = A′ − BQ1 = A + ΔA − B*(A − C + ΔA + ΔC)/(B + D). The sign of P1 − P0 depends on ΔA and ΔC; it can be positive or negative.

Numerical illustration:
- If ΔA = 10, ΔC = 5 → price rises.
- If ΔA = 5, ΔC = 20 → price falls.

4) Why the correct answer is correct
Because demand and supply both increase, quantity must rise. Price is indeterminate because the opposing effects can dominate depending on magnitudes.

5) Why other options are incorrect
- a and b claim price will rise for sure; that ignores the supply-induced downward pressure on price.
- c claims both fall, which contradicts the clear increase in quantity from both shifts.

Conclusion: The correct choice is d: the equilibrium price may rise or fall, but the equilibrium quantity will rise for certain. This matches the provided answer.

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