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

Question

8. Short-run and long-run effects of a shift in demand Suppose that the chicken industry is in long-run equilibrium at a price of $5 per kilogram of chicken and a quantity of 150 million kilograms per year. Suppose that the Public Health Agency of Canada (PHAC) announces that a chemical found in chicken is causing bacterial infections to spread around the world. The PHAC's announcement will cause consumers to demand In the short run, firms will respond by On the graph below, shift the demand curve, the supply curve, or both on the following diagram to illustrate these short-run effects of the PHAC's announcement. chicken at every price. 10 Demand Supply 2 0 30 60 90 120 150 180 210 240 270 300 QUANTITY (Millions of kilograms) In the long run, some firms will respond by until

Explanation / Answer

Ans:

1) The PHCS annuncement will cause consumers to demand less chicken at every price. In the short run firms will respond by producing less chicken and running at a loss.

The demand curve will shift to the left

Explanation

The PHAC'S report will cause the demand for the chicken to decrease. In the short run, firms in the chicken industry is fixed and the shift in demand causes a movement along the short-run supply curve. Due to decrease in the price of chicken each firm produces less chicken than before.

Since the chicken industry is in long run equilibrium , the firm are earning zero profits and decrease in price would cause firms to be running at a loss.

2) In the long run some firms will respond by exiting the industry until each firm in the industry is once again earning zero profit.

The demand curve will shift to the left and the supply curve will shift to the left.

3) The new equilibrium price and quantity suggest that the shape of the long run supply curve in this industry is up ward sloping.

Related Questions

Navigate

• Browse (All)
• Browse 8
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.