Suppose increased demand for corn for ethanol production has resulted in record high corn prices. Which is likely to happen to the supply of wheat, assuming that corn and wheat are substitutes in production?There will be a movement from one point on the supply curve to a higher point on the curve.The supply curve will shift left.There will be a movement from one point on the supply curve to a lower point on the curve.The supply curve will shift right.
Question
Suppose increased demand for corn for ethanol production has resulted in record high corn prices. Which is likely to happen to the supply of wheat, assuming that corn and wheat are substitutes in production?There will be a movement from one point on the supply curve to a higher point on the curve.The supply curve will shift left.There will be a movement from one point on the supply curve to a lower point on the curve.The supply curve will shift right.
Solution
The supply curve for wheat is likely to shift to the left. Here's why:
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Corn and wheat are substitutes in production. This means that farmers can choose to produce either crop on their land.
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If the price of corn increases due to higher demand for ethanol production, farmers will find it more profitable to grow corn instead of wheat.
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As a result, the amount of land and resources dedicated to wheat production will decrease, reducing the overall supply of wheat.
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This reduction in supply, assuming demand remains constant, is represented by a leftward shift of the supply curve.
So, the correct answer is "The supply curve will shift left."
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