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Suppose sharply higher coffee prices lead to an increase in demand for tea. As tea prices increase, tea producers experience short-run economic profits. If the tea industry is a price-taker industry and if sufficient time is allowed for the market to adjust fully to the increase in demand for tea, one would expect the tea industry's output to
A) increase, and economic profits to increase as well.
B) increase, and economic profits to disappear.
C) decline, and economic profits to increase.
D) decline, and economic profits to disappear.
Price-Taker Industry
An industry in which individual firms have no control over the price of their product because the product is standardized, leading them to accept the prevailing market price.
Economic Profits
The difference between total revenue and total costs, including both explicit and implicit costs, indicating the extent to which a firm exceeds the opportunity cost of its resources.
Market Adjustment
Market Adjustment refers to the changes in price levels and economic variables in response to supply and demand dynamics.
- Discern between immediate and future market adaptations following fluctuations in demand and supply.
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Learning Objectives
- Discern between immediate and future market adaptations following fluctuations in demand and supply.
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