Question

What effect will each of the following most likely have on the supply of corn in a competitive market? State what happens to supply. Explain your reasoning in each case and relate it to a supply determinant. (a) the development of an improved corn seed (b) an increase in the price of soybeans which can also be planted on land used for growing corn (c) an increase in government payments for growing corn (d) an increase in the price of fertilizer

Answer 1

(a) the development of an improved corn seed indicates that there has been an improvement in the production technology. Due to this technological improvement, the supply of corn will increase.

(b) an increase in the price of soybeans which can also be planted on land used for growing corn will increase the supply soybeans and may reduce the supply for corn since farmers will find producing soybeans more attractive, giving them higher profits.

(c) An increase in government payments for growing corn will lead to an increase in the supply of corn as there is a production quota which is provided by the government to the farmers.

(d) Fertilizer is considered as an input to the corn production. Any increase in the input prices will have a detrimental effect on the supply of total output. So, increase in the price of fertilizer will reduce the supply of corn in the market.