Question

7. 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 350 million pounds per year. Suppose that WebMD claims that a protein found in turkey will increase your expected lifespan by 5 years.

WebMD's claim will cause consumers to demand _______ turkey 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 longrun 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

Blanks-

1) more

2) producing more turkey and earning positive profit

3) entering the industry

O Supply Demand + Supply PRICE (Dollars per pound) Demand 0 + 70 630 140 210 280 350 420 490 560 QUANTITY (Millions of pounds) 700

4) each firm is once again earning zero profit

5) horizontal

Supply Demand Supply PRICE (Dollars per pound) Demand 0 70 140 210 280 350 420 490 560 630 QUANTITY (Millions of pounds) 700

Answer 2

In the long run some firms will respond by entering the industry until each firm in the industry is once again earning zero profit the new equilibrium price and quantity suggest curve in the industry is horizontal in the long run \r\n Web MD's claim will cause consumers to demand more chicken at every price In the short run firms will respond by producing more chicken and earning positive profit [Note Demand curve will shift to the right]