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 them?

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BlackTom AI · Accepted Answer

The question asks what happens to the equilibrium price and quantity of lattés when a new machine reduces labor input in production. This implies a decrease in production costs and thus an increase in supply, shifting the supply curve to the right. Now let's evaluate each option in turn.
Option 1: 'Both the equilibrium price and quantity would increase.' If supply increases (rightward shift) while demand remains the same, the typical outcome is a lower price and a higher quantity, not higher price. So this option misstates the direction of the price change and is unlikely to be correct.
Option 2: 'Both the equilibrium price and quantity would decrease.' A rightward supply shift tends to lower price and raise quantity, not lower both. Therefore this option incorrectly assigns a decrease to the equilibrium quantity as well, making it inconsistent with standard supply–demand dynamics.
Option 3: 'The equilibrium price would increase, and the equilibrium quantity would decrease.' This describes a leftward shift of the supply curve (less supply) or a rightward shift of the demand curve with an unusual interaction, but given the scenario a reduction in labor would increase supply, not reduce it. Hence this option contradicts the expected effect of reduced production costs on supply and is incorrect.
Option 4: 'The equilibrium price would decrease, and the equilibrium quantity would increase.' This matches the standard result of an increase in supply: more is supplied at every price, pushing the price down and the quantity demanded at the new equilibrium up, assuming demand remains unchanged. The rationale hinges on cost savings shifting the supply curve rightward and altering the intersection point accordingly.
In summary, the remaining option correctly aligns with the conventional model: a production-technology improvement lowers costs, shifts supply right, lowers price, and raises quantity. The other statements either flip the direction of the price change, incorrectly couple price and quantity movements, or describe scenarios opposite to the described supply increase.

Microeconomics Week 1 Quiz Microeconomics Week 1 Quiz

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 them?

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Microeconomics Week 1 Quiz Microeconomics Week 1 Quiz

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 them?

View Explanation

Log in for full answers

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