The US is Australia’s major export market for beef. Suppose that the mad cow disease hits...

The US is Australia’s major export market for beef. Suppose that the mad cow disease hits the US and causes a shortfall in US beef production. Using a three-panel diagram, explain the effect of the mad cow disease on the US’s and the world’s beef market. (Hint: Consider the US as a large country in this case). (10 pts.)

Solutions

Expert Solution

When the supply decreases, accompanied by no change in demand, there is a leftward shift of the supply curve. As supply decreases, a condition of excess demand is created at the old equilibrium level. Effectively there is increased competition among the buyers, which obviously leads to a rise in the price.

An increase in price is accompanied by a decrease in demand and an increase in supply. This continues until a new equilibrium level is attained. Further, there is a rise in equilibrium price but a fall in equilibrium quantity.

Rahul Sunny answered 1 year ago

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