The Impact of Olive Shortage and Health Benefits Study on Olive Oil Market
What happens to the price and the quantity bought and sold in the market for olive oil if countries producing olive oil experience an olive shortage and a new study is released demonstrating the health benefits of olive oil?
How does the olive shortage affect the supply and price of olive oil?
How does the new study on the health benefits of olive oil affect the demand for olive oil?
Final answer:
The price of olive oil would increase due to the olive shortage (supply decrease) and the released study on its health benefits (demand increase). The quantity of olive oil bought and sold would initially decrease due to the shortage but could potentially increase due to the rising demand influenced by the health benefits.
Explanation: The question involves a scenario of supply and demand in economics. In this case, the olive oil market is affected by two factors: an olive shortage, which impacts the supply, and a released study that shows the health benefits of olive oil, which impacts demand.
Initially, the olive shortage would decrease the supply of olive oil in the market. According to the law of supply, when supply decreases and demand remains constant, the price would increase. Therefore, the price of olive oil would initially increase because of the olive shortage, assuming all other factors remain constant. However, the quantity bought and sold would decrease because of the lower supply.
Next, the released study demonstrating the health benefits of olive oil would lead to an increase in demand. According to the law of demand, when demand increases and supply remains constant, the price would also increase. Therefore, the price of olive oil would further increase because of the higher demand. The quantity bought and sold may increase due to the higher demand, despite the lower supply, but it largely depends on other market factors.