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Suppose research confirms eating beef can cause cancer. Suppose further, that in concern for methane emission,...

Suppose research confirms eating beef can cause cancer. Suppose further, that in concern for methane emission, a greenhouse gas, from beef production, the government imposes strict regulation on the beef industry, increasing the cost of producing beef. Which of the following is true?

a) The price will rise, but we do not know what will happen to the equilibrium quantity.

b) The equilibrium quantity will rise, but we do not know what will happen to the price.

c) The price will fall, but we do not know what will happen to the equilibrium quantity

d) The equilibrium quantity will fall, but we do not know what will happen to the price

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Answer #1

The equilibrium quantity will fall but we do not know what will happen to the price

Reason: Due to greater awareness among people, demand for beef falls, shifting the demand curve to the left (leading to a fall in both price and quantity). Also, as cost of producing beef rises due to strict regulation, supply of beef will reduce, shifting the supply curve to the left (leading to an increase in price and fall in quantity).

Overall combining the two, while net effect on price is ambiguous, quantity of beef definitely falls.

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