Answered: Suppose that the shrimp industry is in…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Short-run and long-run effects of a shift in demand

Suppose that the shrimp industry is in long-run equilibrium at a price of $5 per pound of shrimp and a quantity of 300 million pounds per year. Suppose that the Centers for Disease Control (CDC) announces that a chemical found in shrimp is causing bacterial infections to spread around the world.

The CDC’s announcement will cause consumers to demand ______ shrimp at every price. In the short run, firms will respond by_____.

Shift the demand curve, the supply curve, or both on the following diagram to illustrate these short-run effects of the CDC’s announcement.

(TABLE 1)

In the long run, some firms will respond by ______ until _______.

(TABLE 2)

The new equilibrium price and quantity suggest that the shape of the long-run supply curve in this industry is _____ in the long run.

Shift the demand curve, the supply curve, or both on the following diagram to illustrate both the short-run effects of the CDC’s announcement and the new long-run equilibrium after firms and consumers finish adjusting to the news.

10
Supply
Demand
8
7
Supply
Demand
1
0 60
120
180
240 300 360 420
480
540
600
QUANTITY (Millions of pounds)
5.
4.
3.
PRICE (Dollars per pound)

10
Supply
Demand
8
6
Supply
4
Demand
1
0 60
120
180
240 300 360 420
480
540
600
QUANTITY (Millions of pounds)
3.
2.
PRICE (Dollars per pound)

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