Question
(a) Consider an economy where many farmers rear pigs to earn a living. Recently there is an outbreak of pig virus and consumers are concerned
(a) Consider an economy where many farmers rear pigs to earn a living. Recently there is an outbreak of pig virus and consumers are concerned about consuming pork. As such the sales of pork in the economy decreases sharply, resulting in a severe drop in the income for pig farmers. The government would like to take action to increase the consumption of pork to help the pig farmers and it is contemplating two options. One is to provide a subsidy to pig farmer and the other is to try to influence consumer tastes through an advertising campaign to highlight that pork is safe to consume.
(b) Assume that both options result in the same magnitude of shift in the demand or supply curve, respectively, and the demand for pork is relatively price inelastic and the supply of pork is relatively price elastic. Explain which option is more effective in increasing the consumption of pork and support your answers with a relevant pork market diagram.
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