Question

A study sponsored by the Food Consumer Safety Board found that consumption of irradiated tomatoes increased the health of laboratory rats. As a result of national press coverage of the report, the demand for irradiated tomatoes increased dramatically. Organic farmers were able to switch from organic production of tomatoes to irradiated production with no additional cost. Assume that the tomato market satisfies all of the assumptions of perfect competition. As a result of the increase in the demand for tomatoes, we would predict that in the short run that the:
A. production of tomatoes would be affected at efficient scale.
B. total cost for existing irradiated tomato producers must rise
C. number of firms in the market would fall as prices fall and firms exit the market.
D, price of tomatoes would rise.

Answer 1

Answer:

D. price of tomatoes would rise.

Explanation:

It is important that you first understand what perfect competition is. Well, perfect competition is an economic term used to describe a situation where there are several industries that offer the same product or service, but none of them has enough power to set the price for that product or service. This term can also be defined as a market that has a large number of sellers of the same product and a large number of buyers of that product.

As stated in the question above, irradiated tomatoes generated a market with perfect competition. When perfect competition is established, the increased demand for a product, in this case irradiated tomatoes, causes the price of that product to increase.

As organic tomato producers will switch to irradiated tomato production, the supply of this product will increase. However, the high demand for this tomato will justify its price increase.