Question

Consider the market for iced coffee. Suppose that the price of an iced coffee falls from $4.25 to $3.50. Assuming that the point on the graph below corresponds to the initial price of $4.25, move the point to a new position on the curve to show the impact of this price change (holding everything else constant).

Answer 1

Answer:

The fall in the price of iced coffee from $4.25 to $3.50 will cause demand to grow.

Explanation:

This is because the market demand curve for any good is downward sloping: the higher the price, the lower the quantity demanded, and the lower the price, the higher the quantity demanded.

So this fall in price will move the equilibrium quantity (the point where supply and demand meet) to move to a point on the demand curve that is below the previous point.