Question

Italian pasta increasingly made of wheat from Canada and U.S” (Durishin, M. & Robinson, A. Vancouver Sun Newspaper, Tuesday, December 3, 2019, p. B4).

“Italy, the world’s biggest pasta consumer, can’t abandon the North American wheat used to make spaghetti and macaroni after smaller plantings and foul weather curbed output in the European Union.

Output in Canada and the U.S. also declined as excessive rain hampered harvests. Farmers also reduced acreage for durum, which can be challenging to grow. Prices for Durum stayed relatively low during the growing season, which contributed to Italy’s demand, Erica Olson, market development and research manager at the North Dakota Wheat Commission, said.

1. Given the information in the story above, there are two “bits” of information that are important to us, and suggest possible changes – or SHIFTS to the SUPPLY for Pasta Wheat from Italy as well as from Canada and the U.S. What are these “bits” drawn from the two paragraphs under the news headline AND What direction is the CHANGE in SUPPLY suggested by each here AND WHY, what might the underlying “CAUSE be?”
   
2. WHAT is the impact on the EQUILIBRIUM Price, P and QUANTITY SUPPLIED, Q_s from the changes in Supply described in question 1 above? In what direction is each changing?

Answer 1

From the news article it can be seen that Italy is importing wheat from Canada and US. As European union's output of wheat is also low. But output in Canada and US also declined because of excessive rain, while output declined, prices remained low which means there were relatively less takers for this.

In terms of shifts to the supply of wheat pasta, the supply is expected to decline because of unfavourable climate impacting the harvests, but the demand in Italy continues to drive the market. The supply is also expected to decline in US and Canada. Thus the change in supply will be to the left as supply of wheat is expected to decline because of unfavourable weather.

But with reduced supply, the prices also remained low as mentioned in the article. The supply curve moved to the left and the demand curve also moved to the left which led to low equilibrium prices of wheat according to the statements.