Suppose that dangerous bacteria are found in some of the ground beef sold in gro

Question

Suppose that dangerous bacteria are found in some of the ground beef sold in grocery stores. What happens in the market for ground beef? (For the purposes of this problem, the short run is one week.) How could this even shift the short run supply curve? How could this even shift the run demand curve? Based on your answer to and , what can we predict about the short run change in the equilibrium price and quantity? If the short run supply curve is perfectly inelastic, then how does this affect your answer to (c)? What is a realistic assumption about the elasticity of short run supply?

Explanation / Answer

(a) Bacteria in beef will reduce the expected short run future demand and thereby to prevent future losses the stores will increase the supply of beef in the market. The supply curve will shift rightwards.

(b) The demand for the beef will go down. Thus the curve will shift leftwards without any change in the price of the beef.

(c) The equilibrium price will certainly go down as the supplied stock is more than the demand for beef. The change in equilibrium quantity can only be ascertained by considering the relative stregnths of change in demand and supply.

(d) If the short run supply is perfectly inelastic, then there will be no change in quantity demanded with any change in the price of the commodity. The equilibrium price will go down.

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