Answer to Question #98242 in Microeconomics for Emmanuel T. Chris

Question

2. Draw supply and demand curve of the market of wheat in US. And then suppose there is an agricultural technology for producing wheat improves, and at the same time, the price of rice decreases. Illustrate graphically what will happen to the supply, demand curve and the new market equilibrium.
Hint: consider rice as a substitute good of wheat

Answer 1

If an agricultural technology for producing wheat improves, and at the same time, the price of rice decreases, then the supply of wheat will increase and shift to the right, the demand will decrease and shift to the left, as a result the market equilibrium price will decrease, and the equilibrium quantity may either increase or decrease depending on the elasticity of demand and supply.