Problem: With Jan 1st, 2000 being the new millennium, many predicted worldwide shortages of champagne, lobster and other New Year delicacies. New England and Canadian wholesalers began stockpiling lobsters it the first half of 1999. Boston dealer James hook ordered 675,000 kilograms which is 50% more than he did last year. The anticipated shortages however, did not materialize. In December, the wholesale price of lobster fell to 12% to $11.70 a kilogram.
1) On a diagram draw the long run supply of lobster for NY eve. In gauging the price elasticity of supply, note that lobster can be stockpiled for over 6 months. (The diagram can be explained instead of drawn)
2) Illustrate the effect of an increase from 1998-1999. How would the increase in demand affect the price? How would the price effect depend on the price elasticity of supply? Please explain how. (Explain the illustration instead of actually drawing it)
3) Processors have developed a method to freeze whole lobsters in a plastic sleeve of brine that provides a quality almost equal to the fresh animal. How would this new technology affect the elasticity of long-run supply?