Suppose both buyers and sellers of wheat expect the price of wheat to rise in the near future. What would we expect to happen to the equilibrium price and quantity in the market for wheat today?

a. The impact on both price and quantity is ambiguous.
b. Price will decrease; quantity is ambiguous.
c. Price will increase; quantity will decrease.
d. Price will increase; quantity is ambiguous.
e. Price will increase; quantity will increase.

1 answer

When both buyers and sellers expect the price of wheat to rise in the near future, buyers are likely to increase their current demand for wheat in order to purchase it at today's lower price. Similarly, sellers may be less willing to sell their wheat today at current prices, anticipating that they can sell it for a higher price in the future.

The increased demand from buyers will generally push prices up, while the decreased supply from sellers (as they hold back on selling) will also contribute to a price increase. Therefore, we expect the equilibrium price to rise.

As for quantity, the increase in demand suggests that more wheat would be bought, but the reduced willingness of sellers to supply wheat could offset that. Thus, the impact on the equilibrium quantity is ambiguous because it depends on the relative shifts in demand and supply.

Given this analysis, the correct answer is:

d. Price will increase; quantity is ambiguous.