The market price of almonds was near historic lows in 2020. Incredibly high prices, cheap water, and optimistic growth projections a few years earlier led to aggressive planting by farmers throughout California (the world's leading producer.) In the fall of 2019, as a response to American trade policy, the Chinese government placed a 60% tariff on imported American almonds. China had been the third largest purchaser of American almonds (slightly behind Spain and India.) To make matters worse, in spring 2020 airlines (a large domestic buyer) ceased all almond purchases as covid shut down air travel.

Other facts: (i) New almond trees take around 8-9 years to produce nuts but once producing, they make harvestable yields for around 25 years.

(ii) Almond trees require a great deal of water (roughly 1.1 gallons PER ALMOND.)

(iii) The Entry Price where firms breakeven is also called the Long Run Equilibrium Price

Mark each of the following statements as TRUE, FALSE, or CANNOT BE DETERMINED. No explanation is required.

Consider the market for almonds in spring 2020.

a. Almond prices are equal to FRATC

b. Farmers are earning negative economic profits

Assume the previous conditions remain constant throughout the decade of the 2020s. By 2030...

c. Market prices will stay constant

d. Farmers will have planted new almond trees

If the Chinese government rescinds the tariffs,

e. The short run equilibrium price will increase

f. The long run equilibrium price will increase