B.
(i)The overall market price of pistachios will fall significantly because the overall cost of pistachio produc-
tion will decrease.
(ii)In the short run, production will not change dramatically, but in the long run pistachio production could
increase because of the lower variable costs to production.C.
(i)Two effects will cause the price of walnuts to fall. The substitution effect will shift the demand curve to
the left, and (because labor is more abundant) the price effect will cause the supple curve to shift to the
right. The cost of production will also decrease for the walnut industry because of the flow of unem-
ployed workers from the pistachio industry to the walnut industry. The cost of hiring walnut pickers will
decrease.
(ii)The quantity of walnuts produced will increase in the long run because of the lower cost of labor.
D.
(i)In the short run, while pistachio farmers use the new technology for picking pistachios, the supply of
laborers will shift to the right. This would cause the wage rate to decrease. In the long run, the walnut
industry would indirectly benefit from the new technology because of the increase in the amount of work-
ers. In the long run the walnut industry will see the benefits of cheaper labor and will increase the number
of trees for production. This will cause a significant decrease in the price of walnuts.
(ii)In the long run equilibrium will be reached between walnut and pistachio prices. The decrease in the
price of labor will be absorbed into the cost of walnut production; this will cause the cost of production
to decrease. In the long run the walnut industry would benefit from the new technology indirectly.
Microeconomics Full-Length Practice Test 1Microeconomics Full-Length
Practice Test 1