Question

Assume a drought in the Great Plains reduces the supply of wheat. Noting that wheat is a basic ingredient in the production of bread and potatoes are a consumer substitute for bread, we would expect the price of wheat to:

a. rise, the supply of bread to decrease, and the demand for potatoes to increase.
b. rise, the supply of bread to decrease, and the demand for potatoes to decrease.
c. rise, the supply of bread to increase, and the demand for potatoes to increase.
d. fall, the supply of bread to increase, and the demand for potatoes to increase.

Answer 1

Following a drought in the Great Plains, the price of wheat would rise due to reduced supply, leading to a decrease in the supply of bread and an increase in the demand for potato substitutes.

Step-by-step explanation:

If we assume a drought in the Great Plains reduces the supply of wheat, we would expect several effects on the market. Firstly, the price of wheat is likely to rise due to the decreased supply. Consequently, because wheat is a basic ingredient in the production of bread, the supply of bread is expected to decrease as the cost of its production increases. Lastly, considering potatoes are a consumer substitute for bread, with bread becoming more expensive and less available, it is logical that the demand for potatoes will increase as consumers look for alternatives.

Therefore, the correct response to what we would expect to happen is: a. the price of wheat to rise, the supply of bread to decrease, and the demand for potatoes to increase.

Answer 2

Answer: a. rise, the supply of bread to decrease, and the demand for potatoes to increase.

Step-by-step explanation:

According to the Economic law of SUPPLY AND DEMAND, less supply means HIGHER prices simply because the good is becoming scarce not unlike fuel during global oil shortages.

Now, we are told that the drought reduced the supply for wheat which means the SUPPLY of wheat has DECREASED and this will translate to the SUPPLY of Bread DECREASING as well. According to the aforementioned law, prices of Bread will therefore RISE.

Since Bread prices have risen, people will seek alternatives to bread as they may not want to pay the high price. This will lead them to choosing the alternative to bread which in this case are Potatoes which would therefore INCREASE the DEMAND for potatoes.