Question

If the cost to produce Megan's frozen chicken nuggets decreases at the same time as consumer tastes shift away from frozen chicken nuggets. The shift in supply is smaller than the shift in demand, which of the following is true?

(A) both the equilibrium quantity and equilibrium price will decrease.
(B) both the equilibrium quantity and equilibrium price will increase.
(C) the equilibrium quantity will increase and equilibrium price will decrease.
(D) the equilibrium quantity will not change and equilibrium price will decrease.

Answer 1

Option (A) is correct.

Step-by-step explanation:

Decrease in the cost of production of frozen chicken nuggets will increase the supply of frozen chicken nuggets and this will shift the supply curve of chicken nuggets rightwards.

If the consumer tastes shift away from the frozen chicken nuggets then there will a reduction in the demand for chicken nuggets which will shift the demand curve leftwards.

It is given that the shift in supply curve is smaller than a shift in demand curve, therefore, there is a fall in the equilibrium price as well as in the equilibrium quantity.