The market for beef is in long-run equilibrium at $3.25 per kilogram.The announcement that mad cow disease has been discovered in Alberta reduces the demand for beef sharply,and the price falls to $2.00 per kilogram.If the long-run supply curve is horizontal,when the long-run equilibrium is reestablished,the price will be:

Question

Quizplus · Accepted Answer

Since the long-run supply curve is horizontal, it means that in the long-run, producers can increase or decrease their supply without affecting the price of the product. Therefore, if the demand for beef decreases (due to the announcement of mad cow disease), the price of beef will also decrease (to $2.00 per kilogram) in the short-run. However, in the long-run, producers can adjust their supply and bring the market back to equilibrium. Since the long-run equilibrium price was $3.25 per kilogram, it is expected that the price will return to this level once the market adjusts to the new information. Therefore, the best choice is A) $3.25 per kilogram.

The Market for Beef Is in Long-Run Equilibrium at $3