CAN GOOD NEWS FOR FARMING BE BAD NEWS FOR FARMERS?

Let’s return to the question posed at the beginning of this chapter. What happens to wheat farmers and the market for wheat when university agronomists discover a new wheat hybrid that is more productive than existing varieties? Recall from Chapter 4 that we answer such questions in three steps. First, we examine whether the supply or demand curve shifts. Second, we consider which direction the curve shifts. Third, we use the supply and demand diagram to see how the market equilibrium changes.

In this case, the discovery of the new hybrid affects the supply curve. Because the hybrid increases tile amount of wheat that can be produced on each acre of land, farmers are now willing to supply more wheat at any given price. In other words, the supply curve shifts to the right. The demand curve remains the same because consumers  desire to buy wheat prodbets at any given price is not affected by the introduction of a new hybrid. Figure 7 shows an example of such a change. When the supply curve shifts from S1 to S2, the quantity of wheat sold increases from 100 to 110, and the price of wheat falls from $3 to $2.

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