Question

8. 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 200 million cans per year. Suppose the Surgeon General issues a report saying that eating tuna is bad for your health, The Surgeon General's report 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 the Surgeon General's report. Supply Demand o- Supply PRICE (Dollars per can) Demand 0 40 80 320 360 400 120 160 200 240 280 QUANTITY (Millions of cans) In the long run, some firms will respond by until

Answer 1

Answer:

o- Supply Demand Supply PRICE (Dollars per can) Demand New Demand 0 40 80 320 380 400 120 180 200 240 280 QUANTITY (Millions of cans)

In the long run,firms will respond by exiting the industry until each firm in the industry is once again earning zero profit.

New Supply S2 Supply Demand Supply PRICE (Dollars per can) AC = Long run Supply Demand New Demand D2 0 40 80 320 380 400 120 180 200 240 280 QUANTITY (Millions of cans) 03 02 01

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.