Question

Assume that microbrewery beer is a normal good. Prices of microbrewery beer have risen steadily in recent years. Over this same​ period, prices for fermenting vats used in beer making have also risen and consumer incomes have fallen. Which of the following best explains the rising prices of microbrewery​ beer?

A) The supply curve for microbrewery beer has shifted to the left while the demand curve for microbrewery beer has shifted to the right.
B) The demand curve for microbrewery beer has shifted to the left more than the supply curve has shifted to the left.
C) The demand curve and the supply curve for microbrewery beer have both shifted to the right.
D) The supply curve for microbrewery beer has shifted to the left more than the demand curve has shifted to the left.

Answer 1

The rising prices of microbrewery beer are best explained by the supply curve shifting to the left more than the demand curve due to increased production costs and falling incomes, which means option D is correct.

Step-by-step explanation:

When considering the rising prices of microbrewery beer with the given conditions - a normal good, increase in prices of production equipment (fermenting vats), and falling consumer incomes - the most likely explanation is that the supply curve for microbrewery beer has shifted to the left due to the higher costs of production, and the demand curve has also shifted to the left, but to a lesser extent because microbrewery beer is a normal good and people are buying less due to the fall in income. This scenario is explained by the economic principle that when the cost of production increases, the supply curve shifts to the left causing a rise in price. Additionally, when income falls, the demand for normal goods decreases, also shifting the demand curve to the left, though the impact on price is dampened if the good in question is something consumers still prioritize purchasing.

This situation is similar to other market scenarios where shifts in supply and demand affect prices. For example, when unexpected events reduce the supply of a good with inelastic demand, prices can rise significantly. Conversely, when supply increases dramatically, as seen with the entry of Vietnam into the world coffee market, prices can fall substantially if the demand curve is inelastic. However, the answer to the student's question is that Option D best explains the rise in prices for microbrewery beer: The supply curve for microbrewery beer has shifted to the left more than the demand curve has shifted to the left.

Answer 2

The correct answer is option D.

Step-by-step explanation:

Microbrewery beer is a normal good. Its prices have increased recently in recent years. The prices for fermenting vats used in beer have also risen and the consumer income has fallen.

Since beer is a normal good an increase in its price and decrease in the consumer income will decrease its demand. As a result, the demand curve will move to the left, decreasing the price of the product.

At the same time, the increase in the price of fermenting vats will increase the cost of producing beer. This will cause the supply of beer to decrease.

This will cause the supply curve to shift to the left. If the leftward shift in the supply curve is more than the leftward shift in demand, the price of beer will increase.