Multiple Choice
What happens in the market for corn if the price of wheat, a substitute in production, decreases?
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3. Supply and Demand
Overview of Supply and Demand Shifts
Multiple Choice
What happens in the market for corn if the government decides to subsidize farmers?
A
Demand shifts to the left
B
Demand shifts to the right
C
Supply shifts to the left
D
Supply shifts to the right
Verified step by step guidance1
Understand the concept of a subsidy: A subsidy is a financial assistance provided by the government to producers, which lowers their production costs and encourages them to produce more.
Identify the effect of a subsidy on supply: When the government subsidizes farmers, it effectively reduces their cost of production, making it cheaper to produce corn.
Analyze the supply curve: With lower production costs, farmers are willing to supply more corn at each price level, leading to an increase in supply.
Determine the direction of the supply shift: An increase in supply is represented by a rightward shift of the supply curve in the market for corn.
Conclude the market impact: As the supply curve shifts to the right, the market will experience an increase in the quantity of corn supplied, potentially leading to a decrease in the market price of corn, assuming demand remains constant.
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