Question

Suppose that the market for​ gluten-free spaghetti is in​ long-run equilibrium at a price of​ $3.50 per box and a quantity of 4 million boxes sold per year. Assume that the production of​ gluten-free spaghetti is a​ constant-cost industry. If the demand for​ gluten-free spaghetti increases​ permanently, which of the following combinations of equilibrium price and equilibrium quantity would you expect to see in the long​ run?

Answer 1

In a constant-cost industry, an increase in demand for gluten-free spaghetti will lead to a higher equilibrium quantity while the equilibrium price remains unchanged in the long run.

Step-by-step explanation:

If the market for gluten-free spaghetti is initially in long-run equilibrium at a price of $3.50 per box with a quantity of 4 million boxes sold per year, and the demand for gluten-free spaghetti increases permanently, the long-run outcome in a constant-cost industry would involve an increase in the equilibrium quantity but no change in the equilibrium price. This is because new firms will enter the market and supply will adjust upwards to meet the increased demand, which keeps the price stable at the original equilibrium level due to constant costs of production. If we look at another scenario described in your reference material, such as the gasoline market where the equilibrium price is $1.40 per gallon, and the equilibrium quantity is 600 million gallons, finding the equilibrium without a graph would involve comparing the demand and supply schedules to locate the price at which quantity demanded and quantity supplied are equal.