Chapter 5, Problem 1P

To determine

(a)

To show:

The effect on the market for wheat in the given case with the help of the supply and demand curve.

Answer to Problem 1P

The market for wheat will see a decrease in supply. This is due to the unfavorable weather condition which will result into a higher equilibrium price and lower equilibrium quantity.

Explanation of Solution

The unfavorable weather condition brings a situation where there is a limitation in the supply of the wheat crop leading to an increase in price of the crop. As in demand supply concept, when there is rise in price there will be an inverse relation with supply; so, there will be a fall in supply.

If there is a decrease in supply of wheat, then the price will go up, which will result to lowering demand that will lead to new equilibrium, $E_2$, at a higher equilibrium price, P₂, and a lower equilibrium quantity, Q₂.

When the supply of crop of wheat falls from S₁to S₂due to floods, then there will be a rise in price from P₁to P_2.

Economics Concept Introduction

Demand and supply curve:

Demand and supply curve represents the relationship between the quantities of the product a supplier supplies in the market and the quantity of the product a consumer demands. The point where the supply and demand curve meets are referred to as the equilibrium price.

To determine

(b)

To show:

The effect on the market for wheat in the given case with the help of the supply and demand curve.

Answer to Problem 1P

Corn is a substitute for wheat, and there is a decrease in price for corn.There will be reduction in demand for wheat resulting in a decrease of price and quantity of wheat.

When a substitute is available in the market for a product in lower price then there will be chances of drop in the demand of that product. As corn is a substitute of wheat, fall in the price of corn will lead to a decrease in demand for wheat, resulting in leftward shift of demand curve. The prices and quantity of wheat will go down causing new equilibrium, E₂.

In this case, it could be seen that with decrease of demand of wheat from D₁to D₂, there will be a shift in price of wheat too from P₁ to P_2.

(c)

To show:

The effect on the market for wheat in the given case with the help of the supply and demand curve.

Demand and supply curve:

Demand and supply curve represents the relationship between the quantities of product a supplier supplies in the market and quantity of product a consumer demand. The point where the supply and demand curves meet is referred to as the equilibrium price. This is the price at which a supplier agrees to supply the commodities and the consumers agree to buy.

If it is a favorable weather condition for wheat, it would result to the increase in the production of wheat, leading into the increase in the supply of wheat.

In the given case, initial equilibrium is represented with $E_1$, supply with $S_1$ and price with $P_1$. As the situation states that the weather is great in Midwest, this will result in more production of wheat and in turn more supply.

With the increase of supply in wheat, there will be lower equilibrium of price represented by ${\text{P}}_{\text{2}}$ and greater equilibrium of quantity at ${\text{Q}}_{\text{2}}$, with new supply curve ${\text{S}}_{\text{2}}$ shifted rightwards resulting into new equilibrium ${\text{E}}_{\text{2}}$.

(d)

To show:

The effect on the market for wheat in the given case with the help of the supply and demand curve.

Demand and supply curve:

Demand and supply curve represents the relationship between the quantities of product a supplier supplies in the market and quantity of product a consumer demands. The point where the supply and demand curves meet is referred to as the equilibrium price. This is the price at which a supplier agrees to supply the commodities and the consumers agree to buy.

With the falling price of fertilizers, there will be an increase in the supply of wheat. This will result into dipping of the price of wheat and increase in the equilibrium quantity traded.

Fertilizer is one of the core component in agriculture. Any change in price of the fertilizers would affect the demand and supply condition of crop too. With the fall in price of fertilizers, the cost of producing wheat will go down that will lead to increase in supply. As a result of increase in supply, price of wheat will go down, but the movement of supply curve will outweigh the movement of price leading into equilibrium price of wheat to fall (from P₁ to P₂).

In the graph, there is a rise in supply from S₁to S₂, which will lead to a fall in the price from P₁to P_2.

(e)

To show:

The effect on the market for wheat in the given case with the help of the supply and demand curve.

Demand and supply curve:

Demand and supply curve represents the relationship between the quantities of product a supplier supplies in the market and quantity of product a consumer demand. The point where the supply and demand curves meet is referred to as the equilibrium price. This is the price at which a supplier agrees to supply the commodities and the consumers agree to buy.

With the involvement of more individual in growing wheat there will be increase in supply of wheat. This will result into price of wheat dipping.

The initial equilibrium is at point A.With increase in wheat growers the supply of the wheat will also increase. The initial supply curve will shift rightwards from S to S_1,the change in supply will form new equilibrium at point B, by intersection of new supply curve S₁and demand curve D.

Due to the increase in supply of wheat, the price will decrease from P to P₁with increase in equilibrium quantity traded at Q₁.

Explanation of Solution

When a substitute is available in the market for a product in lower price then there will be chances of drop in the demand of that product. As corn is a substitute of wheat, fall in the price of corn will lead to a decrease in demand for wheat, resulting in leftward shift of demand curve. The prices and quantity of wheat will go down causing new equilibrium, E₂.

In this case, it could be seen that with decrease of demand of wheat from D₁to D₂, there will be a shift in price of wheat too from P₁ to P_2.

Economics Concept Introduction

Demand and supply curve:

Demand and supply curve represents the relationship between the quantities of product a supplier supplies in the market and the quantity of product a consumer demands. The point where the supply and demand curves meet is referred to as the equilibrium price. This is the price at which a supplier agrees to supply the commodities and the consumers agree to buy.

To determine

(c)

To show:

The effect on the market for wheat in the given case with the help of the supply and demand curve.

Answer to Problem 1P

If it is a favorable weather condition for wheat, it would result to the increase in the production of wheat, leading into the increase in the supply of wheat.

Explanation of Solution

In the given case, initial equilibrium is represented with $E_1$, supply with $S_1$ and price with $P_1$. As the situation states that the weather is great in Midwest, this will result in more production of wheat and in turn more supply.

With the increase of supply in wheat, there will be lower equilibrium of price represented by ${\text{P}}_{\text{2}}$ and greater equilibrium of quantity at ${\text{Q}}_{\text{2}}$, with new supply curve ${\text{S}}_{\text{2}}$ shifted rightwards resulting into new equilibrium ${\text{E}}_{\text{2}}$.

Economics Concept Introduction

Demand and supply curve:

Demand and supply curve represents the relationship between the quantities of product a supplier supplies in the market and quantity of product a consumer demand. The point where the supply and demand curves meet is referred to as the equilibrium price. This is the price at which a supplier agrees to supply the commodities and the consumers agree to buy.

To determine

(d)

To show:

The effect on the market for wheat in the given case with the help of the supply and demand curve.

Answer to Problem 1P

With the falling price of fertilizers, there will be an increase in the supply of wheat. This will result into dipping of the price of wheat and increase in the equilibrium quantity traded.

Explanation of Solution

Fertilizer is one of the core component in agriculture. Any change in price of the fertilizers would affect the demand and supply condition of crop too. With the fall in price of fertilizers, the cost of producing wheat will go down that will lead to increase in supply. As a result of increase in supply, price of wheat will go down, but the movement of supply curve will outweigh the movement of price leading into equilibrium price of wheat to fall (from P₁ to P₂).

In the graph, there is a rise in supply from S₁to S₂, which will lead to a fall in the price from P₁to P_2.

Economics Concept Introduction

Demand and supply curve:

Demand and supply curve represents the relationship between the quantities of product a supplier supplies in the market and quantity of product a consumer demands. The point where the supply and demand curves meet is referred to as the equilibrium price. This is the price at which a supplier agrees to supply the commodities and the consumers agree to buy.

To determine

(e)

To show:

The effect on the market for wheat in the given case with the help of the supply and demand curve.

Answer to Problem 1P

With the involvement of more individual in growing wheat there will be increase in supply of wheat. This will result into price of wheat dipping.

Explanation of Solution

The initial equilibrium is at point A.With increase in wheat growers the supply of the wheat will also increase. The initial supply curve will shift rightwards from S to S_1,the change in supply will form new equilibrium at point B, by intersection of new supply curve S₁and demand curve D.

Due to the increase in supply of wheat, the price will decrease from P to P₁with increase in equilibrium quantity traded at Q₁.

Economics Concept Introduction

Demand and supply curve:

Demand and supply curve represents the relationship between the quantities of product a supplier supplies in the market and quantity of product a consumer demand. The point where the supply and demand curves meet is referred to as the equilibrium price. This is the price at which a supplier agrees to supply the commodities and the consumers agree to buy.