Question

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

Suppose that the turkey industry is in long-run equilibrium at a price of $5 per pound of turkey and a quantity of 250 million pounds per year. Suppose that the Centers for Disease Control (CDC) announces that a chemical found in turkey is causing bacterial infections to spread around the world.

The CDC’s announcement will cause consumers to demandless/more turkey at every price. In the short run, firms will respond byproducing less turkey and running at a loss/ existing the industry/ producing the same amount of turkey and earning positive profit/ entering the industry/ producing the same amount of turkey and running at a loss/ producing more turkey and earning positive profit.

In the long run, some firms will respond by existing the industry/ producing more turkey and earning positive profit/ producing more turkey and running at a loss/ entering the industry/ producing less turkey and running at a loss/ producing less turkey and earning positive profit untilnew technologies are discovered that lower costs/ each firm in the industry is once again earning zero profit/ turkey populations grow large enough to support more firms/ consumer demand returns to its original level

The new equilibrium price and quantity suggest that the shape of the long-run supply curve in this industry is upward sloping/ horiotal/ downward sloping/ vertical in the long run.

Answer 1

The CDC’s announcement will cause consumers to demand less turkey at every price. In the short run, firms will respond by producing less turkey and running at a loss.
(The announcements shows ill effects of turkey so demand will decrease and in short run, producers can not exit so they will produce less thereby incurring losses.)

In the long run, some firms will respond by existing the industry until each firm in the industry is once again earning zero profit.
(In long run, some firms will exit due to losses until each firm is earning zero economic profits.)

The new equilibrium price and quantity suggest that the shape of the long-run supply curve in this industry is horizontal in the long run.
(As each firm is earning zero economic profits so long run supply curve is horizontal.)