Question

Consider wheat, an input into many final food products such as breakfast cereal. Nordhaus discusses the role that climate change is expected to have in reducing mountain snowpack in many regions of the world. Reduced snowpack reduces water availability for irrigation, thereby harming agricultural productivity. Because cereal and milk are often eaten together, assume they are complements for the purposes of this assignment. Now, consider the market for breakfast cereal (e.g. Wheaties) where wheat is an input. Using supply and demand diagrams, what effect will a widespread climate change-induced reduction in mountain snowpack will have on equilibrium in the markets for breakfast cereals

Answer 1

Step-by-step explanation:

The supply and demand of the cereals were already given. The use of carbon fertilizers for the production of cereals will lead to an increase in the supply of cereals as more cereals will now be produced. Hence, the supply curve will shift towards rights designating an increase in the supply of cereals.

Now, these carbon fertilizers do not lead any effect on demand for cereals, this implies that equilibrium will shift downward, therefore consumers can get more quantity at a lower rate or decreased prices.