8. Short-run and long-run effects of a shift in demand Suppose that the shrimp industry is in long-run equilibrium at a price of $5 per pound of shrimp and a quantity of 150 million pounds per year. Suppose that WebMD claims that the bacteria found in shrimp will decrease your expected lifespan by 5 years. WebMD’s claim will cause consumers to demand shrimp at every price. In the short run, firms will respond by .

Sometimes in order to understand how businesses work we should try to put ourselves in their position. You are told that your company is going out of business in a few years, but at the same time your customers are willing to buy your products at higher prices than normal because you are going out of business.

What would you do? Off course you would decide to increase your prices to try to get as much profit as possible for as long as you can. Or we should say as long as you are still in business.

Think about oil. What would happen to oil prices if oil reserves around the wold would be exhausted in two years? Prices would skyrocket and the quantity demanded would keep increasing until we run out of oil. The same logic applies to all businesses.