Answer to Question #310773 in Microeconomics for Syeda

Question

Much of the demand for U.S. agricultural output has come from other countrie. in 1998 the total demand for wheat was Q=3244-283P. Of this total domestic was QD=1700-107P and domestic supply was QS=1944-207P. Suppose the export demand for wheat falls by 40 percent.
a. U.S. farmers are concerned about this drop in export demand. What happens to the free-market price of wheat in the United States? Do farmers have much reason to worry?

Answer 1

A drop in the export demand for wheat means that the country will, have more wheat at their disposal. Due to the free market economy, the price of wheat will significantly drop because of the high supply of wheat in the market. The high supply is leads to drop in the price of wheat. Further, the economy might reduce the price of wheat to attract export demand so that more countries can demand more wheat at a cheaper price. This export of wheat will also be done at a cheap price due to surplus. Therefore, the drop in demand will generally lead to a drop in the market price of wheat to attract to demands.