Question

The market for russet potatoes is in equilibrium, and it's a perfectly competitive increasing-cost industry. The price of potatoes is currently $6 per 100-pound sack. Low carbohydrate diets suddenly become popular, and many people substitute cauliflower and other vegetables for potatoes. As a result, demand for potatoes falls. What will happen to the price of potatoes in the short run and in the long run

Answer 1

Answer:

Answer in explanation

Explanation:

In this question, we are asked to state what will happen to the price of potatoes in the short and long run giving some happenings.

Firstly, we identify that the market for the russet potatoes are in equilibrium with a price of $6 per 100-pound sack.

Now, due to dietary changes, low carbohydrates diet become suddenly popular. This made the availability of substitutes for the russet potatoes. Hence, there is a demand loss for Russet potatoes. Having considered the market properties of the Russet potatoes, it is expected that the price of the russet potatoes will fall. This is principally due to the law of demand. Hence, in the short run, the price is expected to fall below the $6 mark.

What will happen in the long run?

Since it’s a perfectly increasing cost market, there would surely be a bull run later on with the price getting higher than what is expected in the short run. This however does not say anything about if the price would rise above the initial $6 mark