Question

Using supply and demand, show graphically the impact of the following "shocks on the U.S. market for lobster dinners. Note the effect on equilibrium price and quantity.+ a. (4 points) Coastal development reduces the quality of lobster habitat. b. (4 points)* Average incomes across the U.S. increase.. c. (4 points) Import tariffs on Canadian lobsters are reduced. d. (4 points) The price of Alaskan king crab falls. e(4 points)* A new study announces the health benefits of shellfish.* f. (4 points)» Global warming causes more hurricanes in the Atlantic.+

Answer 1

a) Coastal development reduces the quality of lobster habitat.

=> Supply decreases, demand remains unchanged.

Shifts in Supply, Demand Unchanged S2 s, Supply Increases: Supply Decreases PTQ Equilibrium price goes up Quantity Equilibrium quantity goes down 25

Hence equilibrium price increases and equilibrium quantity decreases.

b)

Average income across US increase => more people can afford lobsters in dinners => demand for lobsters increase, supply remains unchanged

INCREASE IN DEMAND Price Supply P2 New Demand P1 Demand Q1 02 Ouantity

Hence equilibrium price increases and equilibrium quantity increases.

c)

Import tariffs on Canadian lobsters are reduced => more imports for lobsters => available supply increase, demand remains unchanged

Hence equilibrium price decreases and equilibrium quantity increases.

d)

Alaskan King crab is a substitute good for lobster. If the price of Alaskan King crab falls, more people would switch to it, thus demand for lobsters decrease. Supply remains unchanged.

DECREASE IN DEMAND Price Supply P1 P2 New Demand Demand 02 Q1 Ouantity

Hence equilibrium price decreases and equilibrium quantity decreases.