The demand for orange juice is price elastic. A severe frost, which destroys large quantities of oranges will
A)lower the equilibrium price but increase total consumer spending on juice.
B)decrease the equilibrium quantity and decrease total consumer spending on juice.
C)decrease both the equilibrium quantity and the price of juice.
D)raise the equilibrium price as well as total consumer spending for juice.
E)raise the equilibrium price but leave total consumer spending for juice constant.

Question

Quizplus · Accepted Answer

A severe frost that destroys large quantities of oranges will decrease the supply of oranges, which will increase the equilibrium price of orange juice. However, since the demand for orange juice is price elastic, the increase in price will lead to a relatively larger decrease in the quantity demanded of orange juice. As a result, the equilibrium quantity will decrease and total consumer spending on juice will also decrease.

The Demand for Orange Juice Is Price Elastic