Question

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

Suppose that the tuna industry is in long-run equilibrium at a price of $ 5 per can of tuna and a quantity of 500 million cans per year. Suppose that WebMD claims that the bacteria found in tuna will decrease your expected lifespan by 2 years.

WebMD's claim will cause consumers to demand _______  tuna at every price. In the short run, firms will respond by _______ 

Shift the demand curve, the supply curve, or both on the following graph to illustrate these short-run effects of WebMD's claim.

In the long run, some firms will respond by _______  until _______ 

Shift the demand curve, the supply curve, or both on the following graph to illustrate both the short-run effects of WebMD's claim and the new long-run equilibrium after firms and consumers finish adjusting to the news.

The new equilibrium price and quantity suggest that the shape of the long-run supply curve in this industry is _______ in the long run.

Answer 1

Given that the Tuna industry is in the long-run equilibrium at a price $5 per can and a quantity of 500 million cans per year. WebMD's claim will cause consumers to demand less tuna at every price. In the short run, firms will respond by producing less tuna and running at a loss. Below graph shows the short-run effect of WebMD's claim: $ Price (Dollars per Can) we a 100 200 300 400 500 600 700 800 900 1000 Quantity (Millions of Cans) From the above graph it can be observed that there is a shift in the demand curve to the left. This results in a decrease in the price and quantity of cans. From this mesovies garanbet rease in the price tante que enig

In the long run some firms will respond by exit the industry until each firm in the industry is earning zero profit. Below graph shows the long run effect of the WebMD's claim: Price (Dollars per Can) ha 100 200 300 400 500 600 700 800 900 1000 Quantity (Millions of Cans) 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.