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Large-scale tampering has been discovered in the bottled drink industry. As a result, new regulations are passed requiring tamper-resistant packaging on all bottled beverages. At the same time, consumers begin switching from drinking soda to drinking low-calorie alternatives. What would happen under these conditions?A.An increase in equilibrium price for bottled waterB.A decrease in equilibrium price for bottled waterC.A decrease in equilibrium quantity of bottled waterD.An increase in equilibrium quantity of bottled water

Question

Large-scale tampering has been discovered in the bottled drink industry. As a result, new regulations are passed requiring tamper-resistant packaging on all bottled beverages. At the same time, consumers begin switching from drinking soda to drinking low-calorie alternatives. What would happen under these conditions?A.An increase in equilibrium price for bottled waterB.A decrease in equilibrium price for bottled waterC.A decrease in equilibrium quantity of bottled waterD.An increase in equilibrium quantity of bottled water

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Solution

The situation described involves two main factors:

  1. The introduction of new regulations requiring tamper-resistant packaging for all bottled beverages. This would likely increase the cost of production for bottled beverages, including bottled water. According to the law of supply, if the cost of production increases, the supply decreases. This would shift the supply curve to the left.

  2. A change in consumer preferences from soda to low-calorie alternatives, presumably including bottled water. This would increase the demand for bottled water, shifting the demand curve to the right.

When demand increases (shifts right) and supply decreases (shifts left), the equilibrium price will increase. Therefore, the answer is A. An increase in equilibrium price for bottled water.

As for the equilibrium quantity, the effect is ambiguous without more information. The increase in demand tends to increase the equilibrium quantity, while the decrease in supply tends to decrease the equilibrium quantity. Without knowing the relative magnitudes of these shifts, we cannot definitively say what will happen to the equilibrium quantity.

This problem has been solved

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