Refer to the accompanying figure. Suppose the solid line shows the current demand curve for coffee. In response to an announcement that much of next year's coffee crop has been destroyed by a storm in Brazil, you should expect:
A. an increase in the quantity of coffee demanded, but no shift in the demand curve.
B. neither a change in quantity demanded nor a shift in demand because next year's coffee crop will not affect the current demand for coffee.
C. the demand curve to shift to D(A) in anticipation of higher future prices.
D. the demand curve to shift to D(B) in anticipation of higher future prices.
Answer: D
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The tit-for-tat strategy implies that the firms
a. in non-competitive industries match price increases but ignore price decreases b. will follow the lead of the dominant firm in making pricing decisions c. prices will change whenever fixed cost changes d. cooperate on the first round, and then follow your competitors reactions on the second round e. price will only change if demand changes