Question

Consider the market for corn.

Indicate whether each of the following events will cause a shift in the supply 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) This will shift the supply curve of corn leftwards because a lot of corn would be destroyed from the drought.

(b) This will increase the demand and price for corn and hence, this will cause a movement along a supply curve.

(c) Reduction in the income level of the consumers will lead to reduce the demand and prices of the corn. Therefore, there is a movement along a supply curve.

(d) Increase in the productivity will cause a rise in the production of corn and hence, this will shift the supply curve rightwards.

(e) By advertising campaign, there is an increase in the demand for beef and therefore, this will increase the price of beef. Hence, cause a movement along a supply curve.