Equilibrium Price and Quantity of Oysters
What would cause both the equilibrium price and equilibrium quantity of oysters to decrease?
Which of the following would cause both the equilibrium price and equilibrium quantity of oysters (assume that oysters are a normal good) to decrease?
a) Increase in oyster supply and increase in consumer income
b) Decrease in oyster supply and decrease in consumer income
c) Increase in oyster supply and decrease in consumer income
d) Decrease in oyster supply and increase in consumer income
Final answer:
An increase in oyster supply and a decrease in consumer income would cause both the equilibrium price and equilibrium quantity of oysters to decrease.
Answer:
The situation that would cause both the equilibrium price and equilibrium quantity of oysters to decrease is an increase in oyster supply and a decrease in consumer income. This is best represented by option c) in your question list. The reasoning behind this is that an increase in supply leads to a decrease in price if demand remains constant. On the other hand, a decrease in consumer income translates to a drop in demand for normal goods like oysters. The decrease in price and quantity is due to the combined effect of decreased demand and increased supply.
Equilibrium price and quantity play a crucial role in economics, especially in understanding the dynamics of supply and demand for a particular good or service. In the case of oysters, which are considered a normal good, changes in supply and consumer income can greatly impact the equilibrium price and quantity. When there is an increase in the supply of oysters, assuming that consumer income remains constant, the market equilibrium will shift. The increase in supply will lead to a surplus of oysters, causing prices to fall as suppliers compete to sell their products. On the other hand, a decrease in consumer income will result in people spending less on oysters, causing a decrease in demand. The combination of these two factors - increased supply and decreased consumer income - contributes to a double impact on the equilibrium price and quantity of oysters. This scenario demonstrates how changes in both supply and demand can affect the overall market conditions for a specific good. Understanding equilibrium price and quantity is essential for making informed decisions in the market economy. By analyzing factors such as supply, demand, and consumer behavior, economists and businesses can predict how changes in these variables will influence the price and quantity of goods like oysters.