Author Question: Assume that there is a shortage of lobster and that for whatever reason prices have not risen to ... (Read 144 times)

iveyjurea · **on:** Jun 29, 2018

Assume that there is a shortage of lobster and that for whatever reason prices have not risen to choke off the excess demand.

Instead, the government has exhorted people to voluntary refrain from lobster consumption to maintain a balance between supply and demand. Assume that the temporary public service announcements are effective and the public reduces its consumption of lobster. Explain using supply and demand analysis what should happen to the equilibrium quantity of lobster and its equilibrium price. Why would this plan not have much of an impact on the lobster market in the long run?

Question 2

If a firm is earning just enough to cover all its economic profits does that mean it's not making a profit?

What will be an ideal response?

zacnyjessica · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

The reduction in demand would keep prices from rising. But it would also result in a decrease in the equilibrium quantity of lobster sold in the market as fishermen move down and along their supply curve and cut back production. This plan is not likely to have much effect in the long run since the campaign is temporary. As soon as the government stops making the public service announcements or as people simply go back to their same demand preferences it is likely in the long run that an increased demand for lobster will result in higher lobster prices and a higher equilibrium quantity of lobster.

Answer to Question 2

No, it means that it is earning a normal profit.