Question

18 . Short-run and long-run effects of a shift in demand

Suppose that the shrimp industry is in long-run equilibrium at a price of $5 per pound of shrimp and a quantity of 150 million pounds per year. Suppose that the Centers for Disease Control (CDC) announces that a chemical found in shrimp is causing bacterial infections to spread around the world.

The CDC's announcement will cause consumers to demand _______  shrimp 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 COC's announcement.

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 the CDC's announcement and the new long-run equilibrium after firms and consumers finish adjusting to the news. 

Answer 1

Answer 2

Answer 3

Bu'ce 1o 30 0 Consumer to The CDC's anmoumeement wl caus demad duncoss sheunp erey pis pens y da wie hespondsy Im show seun,f n sen fprns eaihng unhl aga pi Supply Cune gun New tg pit'o is horizontal n

Answer 4

Blank 1 - )  Less

,Blank 2 - ) Producing less shrimp and running at a loss

Blank 3 - ) Exiting the Industry

PRICE (Dollars per pound Demand 30 60 270 300 90 120 150 180 210 240 QUANTITY (Millions of pounds)

Blank 4 - )  Each firm in the industry is once again earning zero profit

Blank 5 - )  Horizontal

PRICE (Dollars per pound) 300 0 120 15000 210 240770300 QUANTITY (Millions of pounds)

Since the bacterial infection is spreading, the demand for the good will decrease so that the firm are earning loses in which case some firms will exit the market which will decrease the supply.