Question

In the late 1990 s and through \(2000,\) the British public became increasingly concerned about "Mad Cow Disease," which could be deadly to humans if they ate beef from these cattle. Fearing the disease, many consumers switched to other meats, like chicken, pork, or lamb. At the same time, the British government ordered the destruction of thousands of head of cattle. Illustrate the effects of these events on the equilibrium price and quantity in the market for British beef. Can we determine with certainty the direction of change for the quantity? For the price? Explain briefly.

Short answer

The Mad Cow Disease led to both a decrease in demand and supply of British beef, causing a definite decrease in the quantity sold. The impact on the price, however, is uncertain and it could either increase or decrease depending on whether the decrease in supply or demand was more significant.

Step-by-step solution

Understanding the Situation

Under normal circumstances, the price and quantity of a product in a market are determined by the forces of supply and demand. In this situation, two factors are affecting the British beef market; there's a decrease in demand due to the fear of Mad Cow Disease and a decrease in supply as a result of the British government's order to destroy thousands of cattle.

Supply and Demand Diagram

Construct a supply and demand diagram for beef. The initial point of equilibrium - where the supply and demand curves intersect - will demonstrate the original price and quantity of the product. Following the outbreak of the disease, illustrate a shift to the left in the demand curve, reflecting the decrease in demand. Similarly, show a shift to the left in the supply curve, indicating the decrease in supply.

Determining the New Equilibrium

Find the new equilibrium point, where the new supply and demand curves intersect. This reflects the new price and quantity of beef in the market.

Observing the Changes

Compare the original equilibrium price and quantity with the new ones. The decrease in demand would push the price down, while the decrease in supply would drive the price up. The final effect on the price thus depends on which effect is stronger. As for the quantity, both the decrease in supply and demand would lead to a decrease in the quantity of beef in the market.

Conclusions

Based on the cross influences of supply and demand, it can be concluded that the quantity of beef sold decreased, as both factors negatively impact the quantity. However, the impact on price is uncertain; it could either increase or decrease depending on which between supply and demand had a stronger impact.