Consider the market for wheat which is currently in equilibr

Consider the market for wheat, which is currently in equilibrium. Then, the following two things happen: 1) A change in the climate causes farmers to switch from planting wheat to corn and 2) a credible study shows that eating even a moderate amount of wheat is bad for you If the change given is the only change that happened (all other things are held constant), what will be the effect on the equilibrium?

a. Price of wheat increases, change in quantity of wheat is ambiguous

b. Price of wheat decreases, change in quantity of wheat is ambiguous

c. Quantity of wheat increases, change in price of wheat is ambiguous

d. Quantity of wheat decreases, change in price of wheat is ambiguous

e. None of the above

Solution

Quantity of wheat decreases, change in price of wheat is ambigous. This reason is due to first factor supply shifts leftwards. This tendency to reduce quantity and increase price

Due to second factor demand shifts downwards. This reduces quantity and price

As is clear quantity tends to fall due to both effects and but prices tends to rise by one factor and tends to fall due to second factor. The result is quantity falls and effect on price is ambiguos