What would happen to the equilibrium price and quantity of lattés if coffee shops began using a machine that reduced the amount of labor necessary to produce steamed milk,which is used to make lattés,and scientists discovered that lattés cause heart attacks?
A)Both the equilibrium price and quantity would increase.
B)Both the equilibrium price and quantity would decrease.
C)The equilibrium price would decrease,and the effect on equilibrium quantity would be ambiguous.
D)The equilibrium quantity would decrease,and the effect on equilibrium price would be ambiguous.

Question

Quizplus · Accepted Answer

The decrease in the amount of labor necessary to produce steamed milk would lead to a decrease in the cost of producing lattés, which would shift the supply curve to the right. This would lead to a decrease in the equilibrium price of lattés. However, the discovery that lattés cause heart attacks would shift the demand curve to the left, which would decrease the equilibrium quantity of lattés sold. The effect on equilibrium quantity is ambiguous because the decrease in price due to the decrease in production costs may increase demand, but the decrease in demand due to health concerns may decrease it. Therefore, the equilibrium quantity could potentially increase, decrease, or remain the same.

What Would Happen to the Equilibrium Price and Quantity of Lattés