Question

Assume that we are looking at the local market for pizza. Assume that the equilibrium price is $20 and the equilibrium quantity is 1000. Which of the following options best describes what would happen to this market if a study was published that proved that pizza caused serious illness?

1. Supply would decrease causing a surplus situation.
2. Prices would then decline and this causes quantity supplied to increase and quantity demanded to decrease until the new equilibrium is reached at a lower price and lower quantities.
3. Demand would increase causing a surplus situation.
4. Prices would then decline and this causes quantity supplied to increase and quantity demanded to decrease until the new equilibrium is reached at a lower price and higher quantities.
5. Demand would decrease causing a surplus situation.
6. Prices would then decline and this causes quantity supplied to decrease and quantity demanded to increase until the new equilibrium is reached at a lower price and lower

Answer 1

5. Demand would decrease causing a surplus situation

6. Prices would then decline and this causes quantity supplied to decrease and quantity demanded to increase until the new equilibrium is reached at a lower price and lower

Step-by-step explanation:

As a result of the study, demand would fall. People would not want to fall ill as a result of consuming pizza so they would reduce demand. The reduction in demand would shift the demand curve to the left. As a result supply would be greater than demand and a surplus would exist.

Equilibrium price would fall and quantity would fall.

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