Question

The industry supply curve under open-access can be derived by solving for the equilibrium levels of effort and harvest at various prices. For example, suppose that:

i. The equilibrium level of effort decreases as the price increases.

ii. The equilibrium level of harvest increases as the price increases.

What is the relationship between effort and harvest in this scenario?

a) Effort and harvest are positively correlated.

b) Effort and harvest are negatively correlated.

c) Effort and harvest are independent.

d) Effort and harvest have a nonlinear relationship.

Answer 1

In this scenario, effort and harvest are negatively correlated.

Step-by-step explanation:

In this scenario, the relationship between effort and harvest is negatively correlated. As the price increases, the equilibrium level of effort decreases, meaning that firms put in less effort. On the other hand, the equilibrium level of harvest increases as the price increases, indicating that more harvest is obtained. This inverse relationship between effort and harvest is consistent with the law of supply – as the price of a good increases, producers are willing to supply more of it, but with less effort.