Answer to Question #294594 in Microeconomics for Dt334

Question

Suppose that the U.S. government reduces the tariff on imported coffee, and a reputable study is published indicating that coffee drinkers have lower rates of colon cancer. How would we expect that this will affect the supply curve and why?

What would we expect to happen to the demand curve and why?

What collective effect will these changes(s) have on the direction of the equilibrium price and quantity? 

Answer 1

The reduced tariff on imported coffee will cause the supply of coffee to increase and the supply curve to shift rightwards.

A reputable study will cause the demand for coffee to increase and the demand curve shift leftwards.

As a result the equilibrium quantity will increase, and the equilibrium price may either increase or decrease depending on supply and demand elasticities.