Graded Assignment | Attempts: Average: 14 7. Short-run and long-run effects of a

Question

Graded Assignment | Attempts: Average: 14 7. Short-run and long-run effects of a shift in demand Suppose that the perfectly competitive turkey industry is in long-run equilibrium at a price of $3 per pound of turkey and a quantity of 600 million pounds per year. Suppose the Surgeon General issues a report saying that eating turkey is bad for your health. The Surgeon General's report will cause consumers to demandt turkey at every price. In the short run, firms ill respond by entering the industry producing the same amount of turkey and earning positive profit producing less turkey and running at a loss producing the same amount of turkey and running at a loss exiting the industry producing more turkey and earning positive profit liagram to lustrate these short-run effects of the Surgeon General's on. Curves will snap into position, so if you try to move a curve and it snaps back Demand Supply

Explanation / Answer

1. Less

2. Producing same amount of turkey and running at a loss.

3. In the short run demand curve will move left as the quantity demanded will reduce at every price. But the supply curve will remain as it is and the equilibrium price will reduce. In short run producers will not be able to reduce supply and thus will bear losses.

4. In the long run some firms will respond by exiting the industry thus less turkey will be produced and price will start returning to original if cost remains same.

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