Answer to Question #266062 in Microeconomics for Faru

Question

Q3.

Suppose the market for clean water was initially at equilibrium in Japan. However, the Japanese earthquake and resulting tsunami destroy stores of bottled water and bottled water plants as well as severely damage infrastructure that delivers clean water to Japanese households. How will the market of clean water in Japan respond to this change?

Answer 1

With the destruction of facilities used to produce bottled water, the supply of bottled water decreases. The destroyed infrastructure used to deliver clean water will cause an increase in the demand for bottled water. The combined changes in demand and supply will result in an increase in the equilibrium price while the change in the equilibrium quantity is indeterminate.