Question

Suppose that there is a market for corns in California. A series of strong famine occurred in 2020, reducing production of corns substantially. How do you think this famine will affect the supply/demand of corns in 2020? What will happen to the market equilibrium price and quantity of corns in 2020, as opposed to those in 2019? Use the concept of change in demand or/and supply.

Answer 1

Effect on supply/demand:

Since famine reduces production, it reduces supply of the product.

Supply curve should shift to the left, indicating such shorter supply.

There would be no change in demand.

Equilibrium:

Since supply reduces and shifts towards left, it makes equilibrium at a point where equilibrium price increases and equilibrium quantity reduces compare to 2019 equilibrium.

Graphical approach: Price Și Supply É1 P1 Demand Quantity Q1 Q Year 2019: demand and supply curves meet at point E, establishing equilibrium. Corresponding equilibrium price is P and quantity is Q. Year 2020: due to a reduction of supply, the supply curve shifts to the left as S1. It makes equilibrium at E1 point, where equilibrium price is P1 and quantity is Q1. Therefore, price increases by PP1 and quantity reduces by QQ1.