Question

Imagine the market for coffee beans in equilibrium. What happens to the equilibrium price and equilibrium quantity when the consumers expect the price of coffee beans to increase in the near future?

Imagine the market for donuts is in equilibrium. What happens to the equilibrium price and equilibrium quantity when the price of sugar increases?

Imagine the market for mobile calling/data plans is in equilibrium. What happens to the equilibrium price and quantity when the price of smart phones decreases and the number of providers increases?

Imagine the market for alligator boots is in equilibrium. What happens to the equilibrium price and equilibrium quantity when professional athletes and country music stars speak out against alligator boots and the number of alligator boot cobblers (people who make alligator boots) increases?

Answer 1

Question 1

When the consumers expect the price of a commodity to increase in near future then they tends to increase their current demand of commodity.

So, if consumers expect the price of coffee beans to increase in near future, they will increase their demand for coffee beans.

Following figure shows the market for coffee beans -

Initially, market was in equilibrium at point E1, with equilibrium price being P1 and equilibrium quantity being Q1.

Now, consumers have increased their demand for coffee beans as they expect the price of coffee beans to increase in near future. This will shift the demand curve to the right from D1 to D2.

New equilibrium is attained at point E2, with new equilibrium price being P2 and new equilibrium quantity being Q2.

Thus, both equilibrium price (from P1 to P2) and equilibrium quantity (from Q1 to Q2) has increased when the consumers expect the price of coffee beans to increase in the near future.