Question

Suppose that two things happen simultaneously in the market for fish. First, a new technology allows fishing boats to catch more fish while using the same number of crew-members. At the same time a new study shows that eating fish at least three times a week helps prevent heart attacks. How will the market for fish respond?
A.Equilibrium quantity will increase but the effect on the equilibrium price is unknown without more information.
B.Equilibrium price and quantity will both increase.
C.Equilibrium quantity will decrease but the effect on the equilibrium price is unknown without more information.

Answer 1

Answer: Option (a) is correct.

Explanation:

Advanced technology is a determinant of supply and consumer taste & preferences is a determinant of demand.

Therefore, improvement in technology in catching fish will lead to increase the supply of fish and this will shift the supply curve rightwards. On the other hand, eating fish prevents heart attacks, hence, consumer's demand for fish increases, as a result demand curve for fish also shifts rightwards.

This will lead to increase the equilibrium quantity but effect on equilibrium price is ambiguous because it will be depend upon the magnitude of the shifts of demand and supply curve.