8. Short-run and long-run effects of a shift in demand Suppose that the shrimp i

Question

8. 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 500 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 graph to illustrate these short-run effects of the CDC's announcement. Supp Demand Supply and 0 100 200 300 400 500 600 700 800 900 1000 QUANTITY (Millions of pounds) In the long run, some firms will respond by until Shift the demand curve, the supply curve, or both on the following graph 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.

Explanation / Answer

The CDC announcement will cause consumer to demand decrease at every price. Thus in short run firm price will fall and some firm will earn economic losses in short run

In long run some firm will exit the market until again price=min of AC=5

In short run demand curve will shift downward or leftward whereas in long run supply curve will also shift leftward and new equilibrium price=5

The long run supply curve in this industry is horizontal or flat in the long run.

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