Final answer:
A decrease in the price of flour typically leads to an increased supply of bread and a decrease in the market equilibrium price. The increased supply may result in a higher quantity sold at the new lower price. Consumer and producer expectations about future prices can also temporarily affect demand and market dynamics.
Step-by-step explanation:
When the price of flour decreases, this generally leads to a reduction in the cost of production for bread. Consequently, in the market for bread, this would typically result in an increase in the supply of bread as bakers can now produce bread at a lower cost.
As the supply curve shifts to the right, the market equilibrium price of bread is likely to decrease, assuming the demand for bread remains constant. However, as the bread becomes cheaper, the quantity demanded may actually increase as well, resulting in a new equilibrium with a higher quantity of bread sold at a lower price.
Moreover, if bread producers expect the flour prices to remain low or continue decreasing, they may continue to produce more bread in anticipation of sustained or increased demand. Also, when the price of substitutes for flour, like corn flour, changes, it can affect the demand for wheat flour. If the price of corn flour increases, for example, the demand for wheat flour (and wheat bread) might also increase as consumers shift their preferences.
In addition, expectations can play a role in market dynamics. If consumers expect the price of flour to increase in the future, they might purchase more bread now, which could temporarily increase demand and alter market prices and quantities until expectations adjust to new information.