Question

Suppose that the current issue of The New York Times reports an outbreak of mad cow disease in Nebraska, as well as the discovery of a new breed of chicken that gains more weight than existing breeds that consume the same amount of food. How will these developments affect the equilibrium price and quantity of chickens sold in the United States?

Answer 1

Answer:

Equilibrium price will increase and quantity demanded will increase.

Explanation:

Chicken and beef are both meat and exist as substitutes.

The New York Times report on out break of mad cow disease will make consumers look for a substitute to beef, they will buy more of chicken.

The fact that this breed of chicken eat the same feed and gains more weight will attract customers.

When a factor besides price affects the demand of a good it results in a demand shift. In this case demand for chicken increases, so demand curve shifts to the right.

The equilibrium price will also increase as more of the chicken will now be supplied. This is illustrated in the attached diagram by equilibrium price shift from P1 to P2.