Question

Comparative Statics:Consider the market for frozen turkeys. The government has mandated that all farmers switch to organic feed, farmers will no longer have the option to use non-organic feed. At the same time, a huge aluminum shortage causes the price of roasting pans to increase. Articulatehow the two events will affect the price and quantity of frozen turkeys, then show graphically using the supply and demand model.Make sure you identify the net effect.

Answer 1

Non-availability of non-organic feed which are otherwise cheaper than organic feed will cause an increase in production costs of farmers.

An increase in production cost will increase the price of frozen turkeys.

Now, according to the question, at the same time a huge aluminum shortage causes the price of roasting pans to increase. Again, due to the increase in the price of roasting pans, there would be an increase in overall production cost of the farmers which will increase the price of frozen turkeys.

The net effect would be a significantly higher price of frozen turkeys, with smaller quantity of it being supplied and consumed.

Final equilibrium quantity would be Q1 at price P1.