Microeconomics

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Suppose sharply lower coffee prices lead to a decrease in demand for tea. As tea prices decrease, tea producers experience short-run economic losses. If the tea industry is a price-taker industry and if sufficient time is allowed for the market to adjust fully to the decrease in demand for tea, one would expect the tea industry’s output to
a. increase and economic losses to increase as well.
b. increase and economic losses to disappear.
c. decline and economic losses to increase.
d. decline and economic losses to disappear.

i THINK IT IS (d)

  • Microeconomics -

    Draw supply and demand curves for tea. Now decrease demand. What happens to Q?

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