The diagram shows the market for wheat. Country X experiences a severe drought that destroys much of its wheat harvest. At the same time, a new health repor...
Question 1 Report
The diagram shows the market for wheat. Country X experiences a severe drought that destroys much of its wheat harvest. At the same time, a new health report increases consumers' preference for wheat-based foods.
How will the equilibrium in the wheat market change?
Answer Details
The drought decreases supply (leftward shift of the supply curve), which alone would raise price and reduce quantity. The health report increases demand (rightward shift of the demand curve), which alone would raise both price and quantity. Both shifts push price up, so price will definitely rise. However, the effect on quantity is uncertain - supply decreasing pushes quantity down while demand increasing pushes it up. The net effect depends on the relative size of the shifts.
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