Question

1. Consider the market for corn. Draw a graph that show the appropriate change in the

market. Label the curves appropriately and say whether each of the following events will cause

a shift in the demand curve or a movement along the curve. If it will cause a shift, specify the

direction.

a. A drought hits corn-growing regions, cutting the supply of corn.

b. The government announces a new subsidy for biofuels made from corn.

c. A global recession reduces the incomes of consumers in poor countries, who rely on corn as

a staple food (assuming corn is a normal good).

d. A new hybrid variety of corn seed causes a 15 percent increase in the yield of corn per acre.

e. An advertising campaign by the beef producers’ association highlights the health benefits of

corn-fed beef.

Answer 1

a ) due to drought hit corn growing regions , supply of corn decreases which leads to increase in the demand for corn .

hence the demand curve shifts upward along the curve

b) due to announcement of subsidy for biofuels made from corn total cost of production for cornndecreases thus there will be rise inproduction which will lead to increase in suplly of corn.this increase in the supply of corn will lead to shift in demand curve along the curve

the basic pont underlying in shift of the demand curve along the curve or shift of demand curve rightward is that

• a movement along the demand curve occurs when a change in the quantity demanded is caused only by a change in price
• shift in the demand curve happens when there is change in demand due to change in income, complementary goods or the substitutes