Question

Suppose the equilibrium price of a pound of potatoes in all U.S. states is initially $1.20. Further, suppose there is an increase in potato demand in all U.S. states except West Virginia. This increase in demand causes potato prices in all U.S. states, except West Virginia, to increase. If the law of one price holds, potato sellers will eventually adjust the relative quantity of potatoes they sell in all U.S. states, including West Virginia. After this adjustment:_______.
A) the West Virginia potato supply curve will shift rightward.
B) the West Virginia potato demand curve will shift rightward.
C) potato prices in West Virginia will fall and potato demand will increase in all other U.S. states.
D) the price of a pound of potatoes in all states that share a border with West Virginia will not change.
E) the price of a pound of potatoes in all states that share a border with West Virginia will fall.

Answer 1

Answer:

A) The West Virginia potato supply curve will shift rightwards.

Explanation:

When the demand for potato increase its prices will go upwards. All the U.S. states have high demand for potato except West Virginia. The West Virginia will have increased supply because the demand is lower which will cause the price to be lower. The supply curve will shift rightwards because of law of one price.