Question on study guide that i don't get.
Bill O’Really of OX News observed that poultry (chicken and turkey) consumption in the US increased dramatically over the 2000 to 2006 period. This he discovered was due to the fact that consumers, being more health conscious, switched from red meat to poultry, in an effort to eat healthier foods. Intrigued by these findings, Bill contacted the US Department of Agriculture for additional information. The department provided him with data that yielded two findings. First, there was a 75% decrease in the price of poultry over the period and second, there was widespread adoption of cost reducing innovations in poultry processing. Being a supposedly brilliant journalist, Bill concluded that the demand curve for poultry had shifted to the right.
Is Bill’s conclusion correct or incorrect? Explain your answer using supply and demand diagrams.
To determine whether Bill O'Really's conclusion is correct or incorrect, let's analyze the situation using supply and demand diagrams.
In this case, we have two pieces of information: a significant increase in poultry consumption and a decrease in the price of poultry. Based on this information, Bill concluded that the demand curve for poultry has shifted to the right.
To evaluate this conclusion, we need to understand the factors that shift the demand and supply curves.
1. Demand Curve: The demand for poultry can be influenced by factors such as consumer preferences, income levels, and prices of related goods.
If consumers are more health-conscious and are switching from red meat to poultry in an effort to eat healthier foods, this indicates a change in consumer preferences. As a result, the demand for poultry would indeed increase, causing the demand curve to shift to the right.
2. Supply Curve: The supply of poultry can be influenced by various factors, including production costs, technological advancements, and prices of inputs.
The information provided also mentions the widespread adoption of cost-reducing innovations in poultry processing. This implies that there have been improvements in the poultry processing technology, leading to increased efficiency and lower production costs. With reduced costs and increased supply, the supply curve would shift to the right.
Now, let's see how the demand and supply curves would look like in this scenario:
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Demand Curve (D1) Supply Curve (S1)
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Initially, we start with the original equilibrium, where the demand curve (D0) intersects the supply curve (S0), determining the price (P0) and quantity (Q0) of poultry consumed.
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Demand Curve (D0) Supply Curve (S0)
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As the consumer preferences shift towards poultry and new cost-reducing innovations in processing are adopted, the demand and supply curves shift.
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Demand Curve (D1) Supply Curve (S1)
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The new intersection of the demand curve (D1) and the supply curve (S1) results in a new equilibrium, where the price decreases (P1) and the quantity consumed increases (Q1).
Based on this analysis, Bill O'Really's conclusion is correct. The changes in consumer preferences, along with the widespread adoption of cost reducing innovations, have resulted in a rightward shift in the demand curve for poultry.
To determine whether Bill's conclusion is correct or incorrect, we can analyze the situation using supply and demand diagrams.
First, let's consider the information provided:
1. Poultry consumption increased dramatically over the 2000 to 2006 period.
2. Consumers switched from red meat to poultry to eat healthier foods.
3. There was a 75% decrease in the price of poultry over the period.
4. There was widespread adoption of cost-reducing innovations in poultry processing.
Based on this information, we can draw the following conclusions:
1. Increase in Quantity Demanded: The increase in poultry consumption indicates an increase in the quantity demanded. Consumers switching from red meat to poultry suggests a shift in consumer preference towards healthier food options, driving up the demand for poultry.
2. Decrease in Price: The 75% decrease in the price of poultry implies a downward shift in the supply curve. This decrease in price could be due to various factors such as technological advancements, economies of scale, or increased efficiency in poultry processing.
Now, let's look at the demand and supply diagrams to better understand the situation:
- Demand: The demand curve shifts to the right when there is an increase in demand. In this case, the shift is caused by consumers' health consciousness and their switch from red meat to poultry.
- Supply: The supply curve shifts to the right when there is an increase in supply. The widespread adoption of cost-reducing innovations in poultry processing suggests an increase in supply, resulting in a downward shift of the supply curve.
Based on the analysis of the information and the supply and demand diagrams, we can conclude that Bill's observation is correct. The increase in quantity demanded, driven by consumer preferences, along with the decrease in price due to cost-reducing innovations, indicates a rightward shift in the demand curve for poultry.