If consumers suddenly began desiring more apples and fewer oranges,
A) the market price of apples would rise, creating short-run economic profits in the apple industry. Current firms will expand output and new firms will enter the industry.
B) the market price of oranges would fall, creating short-run economic losses in the orange industry. Current firms will reduce output and some will go out of business in the long run.
C) neither a nor b are correct.
D) both a and b are correct.

Question

Quizplus · Accepted Answer

If consumers suddenly began desiring more apples and fewer oranges, the market price of apples would rise, creating short-run economic profits in the apple industry. This would lead to current firms expanding output and new firms entering the industry, as they see the opportunity to make a profit. On the other hand, the market price of oranges would fall, creating short-run economic losses in the orange industry. As a result, current firms will reduce output and some may go out of business in the long run if they are unable to cope with the low prices. Therefore, both A and B are correct.

If Consumers Suddenly Began Desiring More Apples and Fewer Oranges