Suppose That Pasta Is Produced Under Conditions of Perfect Competition

question 197

Multiple Choice

Suppose that pasta is produced under conditions of perfect competition and that the constant-cost industry is initially in long-run equilibrium. Now suppose there is an increase in the price of wheat, which is a key ingredient in producing pasta. Further assume that the price elasticity of demand for pasta is -1.8. In the short run, we would expect to see a:

• A) higher price and a smaller quantity of pasta.
• B) higher price and a greater quantity of pasta.
• C) lower price and a greater quantity of pasta.
• D) lower price and a smaller quantity of pasta.

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