D. (i)(ii)In the regulated coffee market there was a price of P* and a quantity produced of Q*. The typical firm was
producing Qfamount of coffee at price P* and was earning zero economic profits, as seen in the chart for
Part D(i). When the government allows imported coffee to be sold in the market, the supply curve will shift to
the right, depicting the increase in supply. The new quantity supplied in the market will be Q' at a new market
price of P'. At this new price of P', the typical coffee producing firm produces less coffee than before, a
quantity of Qf'. At this new price the typical firm in the industry is now operating under negative economic
profits. In the long run, some coffee producing firms will leave the coffee market because they now operate
with losses. This decrease in the number of firms will slightly decrease the quantity of coffee supplied in the
market; also, this decrease in quantity will cause a slight increase in price. The coffee market will find a new
equilibrium price and quantity. The new price will be between P* and P', and the new quantity will be
between Qf*and Qf'.Q* Qf*
Qf’QuantityAVCATCMCSDP*PriceQ’ QuantityPriceP’S’Q* Quantity QfAVCATCMCSDP^3PriceQuantityPricePart IV: AP Macroeconomics & Microeconomics Tests