Answer to Question #313960 in Microeconomics for jay

Question

The cost of sunflower seeds has increased. Sunflower seeds are an input when sunflowers are produced. Explain verbally how this change will affect the market for sunflowers. You are allowed to use a diagram to explain your answer, but you will only be allocated marks for the correct verbal explanation.

Answer 1

An increase in the price of sunflower seeds will cause an increase in the production cost of sunflowers and thus lead to at reduction in their supply.

This reduction in supply will shift the supply curve to the left from S₀ to S₁ as shown in the diagram below

A shift in the supply curve to the left will shift the equilibrium price from P₀ to P₁ which is higher compared to the original. The increase in price will lead to decrease in quantity demanded leading to a new equilibrium quantity Q₁ down from Q_{0 .}