Question

12. Suppose Market A (left) represents the market for corn in the short run and Market B represents the market for corn (right) in the long run. Large scale negative publicity about the health effects of high fructose corn syrup would have a larger effect on the price of corn in which market? Assume that the effect of negative publicity is the same in both the short and the long run. X 50 50 40 40 MC 30 30 20 20 10 10 Demand Demand 200 400 600 B00 1000 200 400 600 800 1000 Quantity Quantity a. Market A b. Market B c. There will be an identical change in prices in both markets 13. Assuming an identical outward shift of the supply curve caused by a technology innovation that reduces the cost of production, which market will sustain a larger increase in the number of units sold? Price Price (dollars/unit) (dollars/unit) A В $50- $50- 40 40- 30- 30- 20 20 10 10- DI 0 800 200 400 600 1000 200 400 600 800 1000 Quantity Quantity a. Market A b. Market B c. There will be an identical change in quantity Price Price

Answer 1

12) negative publicity will shift the demand curve to the left. In market A there is a relatively smaller reduction in the quantity and a greater reduction in the price. In market B there is a greater fraction in the quantity and a smaller reduction in the price. This happens because of the different supply elasticities. Select option A

13) in this case when the supply curve will shift to the right, there will be a greater increase in the quantity when the demand is elastic which happens in market A. This is because in market B the supply shift will cause a greater decline in the price and a smaller increase in quantity. Select option A