Question

An infestation of banana spiders makes it extremely difficult to harvest Indian bananas. The U.S. Surgeon General has stated that there are numerous health benefits from eating bananas. As a result, one should expect:

A) Equilibrium price to fall, but equilibrium quantity to be indeterminate from the information given.B) Equilibrium price to rise, but equilibrium quantity to be indeterminate from the information given.C) Equilibrium price to be indeterminate from the information given, but equilibrium quantity to rise.D) Equilibrium price to be indeterminate from the information given, but equilibrium quantity to fall.

Answer 1

Equilibrium price to rise, but equilibrium quantity to be indeterminate from the information given. correct.

Step-by-step explanation:

There will be rise in the equillibrum price because on the supply side the spider infestation will reduce supply and as a result of scarcity price will rise.

On the demand side because of the news of health benefits of bananas more there will be more demand for banana and this will also cause price to rise.

Based on the information given we are unable to determine if the equillibrum quantity will rise or fall. If the spider infestation cannot be curbed then the equillibrum quantity will fall, but if the infestation can be cured and sufficient supplied equillibrum quantity will rise.