Question

For this question, select the answer that best states what will happen to the price and quantity for the given situation. Suggestion: draw a supply and demand graph on scratch paper to help you answer the question.

A new, more effective fertilizer is developed. What happens to the market for roses?
Option 1: Price increases; quantity decreases
Option 2: Price increases; quantity increases
Option 3: Price decreases; quantity decreases
Option 4: Price decreases; quantity increases

Answer 1

The development of a more effective fertilizer for roses leads to an increase in supply. This results in a decrease in the equilibrium price and an increase in the equilibrium quantity, making Option 4 the correct answer: Price decreases; quantity increases.

Step-by-step explanation:

The question asks about the impact of a new, more effective fertilizer on the market for roses. When analyzing such a scenario, we look at how this innovation affects supply. A more effective fertilizer means roses can be grown more efficiently and cheaply, leading to an increase in supply. According to the law of supply, an increase in supply, assuming demand remains constant, will result in a decrease in the equilibrium price of roses and an increase in the equilibrium quantity sold. Therefore, the correct answer to how the new fertilizer affects the market is Option 4: Price decreases; quantity increases.

For clarity, in response to the four possible changes in market conditions, they are as follows:

• Increase in demand: Price increases, quantity increases.
• Decrease in demand: Price decreases, quantity decreases.
• Increase in supply (as in this case with the fertilizer): Price decreases, quantity increases.
• Decrease in supply: Price increases, quantity decreases.