Question 39

Market price and quantity supplied both increase

The new report by the American Medical Association indicating significant health benefits of chocolate is likely to increase consumer demand. As demand rises, producers may respond by increasing the supply, resulting in higher market price and quantity supplied of chocolate.

A) Market price and quantity supplied both increase

This option is correct because an increase in consumer demand for chocolate, driven by the report's positive findings, typically leads to higher market prices. Producers, responding to the increased demand, are likely to supply more chocolate, thereby increasing the quantity supplied as well.

B) Market price and quantity supplied both decrease

This option is incorrect. An increase in the perceived health benefits of chocolate would not lead to a decrease in market price or quantity supplied. Instead, it would stimulate demand, resulting in the opposite effect.

C) Market price increases, and quantity supplied decreases

This option is also incorrect. While it is true that the market price may increase due to higher demand, it is unlikely that the quantity supplied would decrease. Producers would typically increase supply in response to rising prices and demand.

D) Market price decreases, and quantity supplied increases

This option is incorrect. An increase in demand due to the report would not lead to a decrease in market price; rather, higher demand generally drives prices up. Additionally, while quantity supplied may increase, it would not do so if the market price were to decrease.

Conclusion

The evidence from the American Medical Association report suggests that chocolate's health benefits will boost demand, leading to an increase in both market price and quantity supplied. All other options fail to account for the relationship between demand increases and market dynamics, thereby affirming that option A is the accurate choice.