Question: 8 With January 1, 2000 heralding a new millennium, many predicted world wide shortages of champagne, lobster, and other New Year delicacies. New England and Canadian wholesalers began stockpiling lobsters in the first half of 1999. Boston dealer James Hook ordered 675,000 kilograms (50% more than the previous year). The anticipated shortages, however, did not materialize. In early December, with just weeks to the New Year, the wholesale price of lobster fell 12% to $11.70 per kilogram.

(A) On a suitable diagram, draw the long run supply of lobster for New Year’s Eve. In gauging the price elasticity of supply, note that lobster can be stockpiled for over 6 months.

(B) Illustrate the effect of an increase in demand from 1998-1999. How would the increase in demand affect the price? How would the price effect depend on the price elasticity of supply?

(C) 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?