Suppose that you are investigating the market for wheat
.
The price of corn
,
a substitute good, has decreased. Which of the following would best describe the market reaction to this event?
Part 2
A.
The supply of corn
increases since farmers
must produce more corn
to make up for the price decrease.
B.
The demand for wheat
decreases, creating a shortage and forcing the price of wheat
to increase.
C.
The supply of wheat
decreases since the price of corn
decreases.
D.
The demand for wheat
decreases, which creates a surplus of wheat
,
causing the price of wheat
to decrease.
1 answer
The correct answer is D. The decrease in the price of corn, a substitute good for wheat, would lead to a decrease in the demand for wheat. This decrease in demand would create a surplus of wheat in the market, causing the price of wheat to decrease.