Question

a major university study finds that drinking green tea has many health benefits. as a result, the equilibrium price of green tea group of answer choices decreases, and producer surplus decreases. increases, and producer surplus decreases. increases, and producer surplus increases. decreases, and producer surplus increases.

Answer 1

When positive news about green tea's health benefits increases demand, the equilibrium price and producer surplus both increase as a result of the shifted demand curve.

Step-by-step explanation:

According to the law of demand and the law of supply, when there is positive news about a product, such as the health benefits of drinking green tea, the demand for that product generally increases. As more people are willing to buy green tea because of the reported health benefits, the demand curve shifts to the right, resulting in an increased equilibrium price. As price rises, producers are willing to supply more of the product, which in turn increases producer surplus. Producer surplus is defined as the difference between what producers are willing to sell a good for and the price they receive. Therefore, in this scenario, the equilibrium price of green tea increases, and the producer surplus increases as well.