9. The long run supply curve in different cost industries The long-run supply cu

Question

9. The long run supply curve in different cost industries

The long-run supply curve in different cost industries Consider the market for tortilla chips, which is a perfectly competitive market. Suppose that tastes shift away from tortilla chips so that the market demand curve shifts leftward. Answer the following questions about the effect of this change in tastes assuming external economies are present. The following graph shows the market for annual tortilla chip consumption. Initially, the market is in a long-run equilibrium at point A. After the change in tastes and the leftward shift in demand, the market moves to point in the short run. In the long run, the supply curve shifts from S1 to S2, which causes the market to move to point in the long run. Comparing the two long-run equilibrium on the graph, you can see that the tortilla chip market is an example of

Explanation / Answer

After the changes in tastes and leftward shift in demand, the market moves to point B in the short run.

In the short run, the supply curve shifts from S1 to S2, which causes the market to move to point to C in the long run.

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