Question

In: Economics

Consider the market for corn. Suppose Iowa, a state that produces a significant amount of corn...

Consider the market for corn. Suppose Iowa, a state that produces a significant amount of corn for the US, faces a natural disaster, which affect both the buyers of corn and the sellers of it. Then the

a. quantity and equilibrium price must both decline.

b. quantity must fall and equilibrium price must rise.

c. price must fall, but equilibrium quantity may rise, fall, or remain unchanged

d. quantity must decline, but equilibrium price may rise, fall, or remain unchanged.

Solutions

Expert Solution

Option

d. quantity must decline, but equilibrium price may rise, fall, or remain unchanged.

The natural disaster decreases both demand and supply.

The decrease in the demand decreases both price and quantity

The decrease in the supply decreases quantity but increases the price.

In total, the quantity decreases but price may increase or decrease or stays the same as per the effect on demand or/and supply.


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