Final answer:
When milk prices rise, cheese supply decreases by 80 pounds at every price due to higher production costs. Conversely, cheese demand increases by 20% at every price if reports suggest cheese is healthy. The market outcome depends on whether supply reduction or demand increase has a greater impact.
Step-by-step explanation:
The question pertains to the economic principles of supply and demand in the context of dairy production and its derivatives like cheese. When the price of milk increases, it causes a decrease in the supply of cheese by 80 pounds at every price because milk is a key input for cheese production. On the other hand, if a new study promotes cheese as healthy, there will likely be an increase in demand by 20% at every price point.
These changes in supply and demand have distinct effects on the market. An increase in the price of milk as an input cost reduces the incentive for producers to supply the same quantity of cheese since it now costs more to produce it, leading to a decrease in supply. Conversely, when demand for cheese increases due to new information on its health benefits, more consumers are willing to buy cheese at each price, leading to an increase in demand.
The overall impact on the cheese market will depend on the net effect of these two changes. If the decrease in supply is greater than the increase in demand, it could lead to higher prices and lower quantities. Alternatively, if the increase in demand outweighs the decrease in supply, there could be larger quantities sold at higher prices.