Question

In the supply & demand model of a market, we predict changes in the equilibrium price and equilibrium quantity of a product associated with changes in the non-price determinants of either supply or demand.

On a graph, when there is a change in a non-price determinant of demand, then we show the demand curve shifting to the right or left, depending on whether demand is increasing or decreasing.

Similarly, when there is a change in a non-price determinant of supply, then we show the supply curve shifting to the right or left, depending on whether supply is increasing or decreasing.

Based on what we covered in class, and the brief explanation above, please analyze the following scenario with a graph, accompanied by a complete analysis in paragraph form, to address the following scenario:

Assume that swine are a natural resource used in the production of pork ribs. Assume that consumers view pork ribs as normal goods, relative to consumer income levels. Here is the scenario. First, suppose a breach in USDA animal import inspections results in a national outbreak of African swine fever, ruining ½ of the US swine herd. Second, there is a simultaneous but unrelated event – the US economy does well and experiences another “boom”, causing the real income of US households to increase by 4%.

Use a standard supply and demand analysis to predict the effects of this scenario (reduction in the swine herd and increased household income) on the pork rib market. In your analysis, please respond to the following questions:

Did the pork rib supply curve shift? Why? Which direction? What is the independent impact on the equilibrium price and equilibrium quantity of pork ribs associated with this change?

Did the pork rib demand curve shift? Why? Which direction? What is the independent impact on the equilibrium price and equilibrium quantity of pork ribs associated with this change?

When both major events in this scenario are combined, then predict: What is the net effect on the new equilibrium price in the pork rib market (increase, decrease or indeterminate), and why? Explain your logic completely.

What is the net effect on the new equilibrium quantity in the pork rib market (increase, decrease or indeterminate), and why? Explain your logic completely.

Answer 1

Yes the pork rib supply curve shifted to the left because of reduction in swine herd.due to swine fever.As a result of the shift, price has risen and quantity has fallen.

When there is increased household income ,demand increases but supply decreases due to reduction in swine herd simultaneously. As a result price rises as demand is more and supply is less .

Quantity demanded is the same or indeterminate.because demand has increased and supply has reduced simultaneously.Increase in income will cause rise in demand and swine fever will cause reduction in supply at the same time.