To address this question properly, let's go through the scenario step-by-step.
1. Initial Situation:
- Initially, there are 7 coffee shops on the same busy street.
2. Change:
- Two of the coffee shops close. Now, there are only 5 coffee shops remaining.
3. Effects on Supply and Price:
- Remaining Coffee Shops: With the reduction in the number of coffee shops from 7 to 5, each of the remaining shops will likely increase their sales to accommodate the demand that was previously met by the two closed shops. Therefore, each remaining shop will sell more coffee than before.
- The supply of coffee will increase in terms of each shop selling more to cover the absence of the closed shops.
- Price Adjustments: With fewer coffee shops in the market, there's reduced competition. Reduced competition often allows remaining shops to increase prices without losing customers, as the demand for coffee remains the same but must be met by fewer shops.
- The price of coffee will increase due to reduced supply competition.
4. Incorrect Considerations:
- Supply Decrease: Saying that the supply of coffee will decrease is incorrect because while two shops are closing, the remaining shops will increase their output to meet the overall demand.
- Demand Decrease: The demand for coffee remains dependent on the consumers' habits and preferences, which are not directly influenced by the number of operational shops. Therefore, the assumption that the demand for coffee will decrease is incorrect.
Summary: If two out of seven coffee shops close:
- Correct Outcomes:
- The supply of coffee by the remaining shops will increase as they will sell more coffee than before to cover the gap left by the closed shops.
- The price of coffee will increase due to less competition and constant or increased demand.
- Incorrect Outcomes:
- The supply of coffee will decrease (incorrect because remaining shops will increase their sales output).
- The demand for coffee will decrease (incorrect because consumer demand remains unchanged).
