Answer to Question #127055 in Microeconomics for Ahmad Rafique

Question

Soybeans are produced in a perfectly competitive market. Assume farmers can grow either corn or soybeans on the same land. What happens to the price of soybeans in the next planting season if the price of corn increases

Answer 1

The price of Soybean will increase due to less supply in the market. 

When corn prices increase, farmers tend to plant more to maximize profits as the prices of corn bushels are more than for soybeans bushels. Thus, farmers will automatically change corn production to corn from soybeans in a bid to earn more profits, thus creating less supply for Soybean, resulting in increased prices.