The market for corn in country A is highly competitive. At the current market pr
ID: 1159952 • Letter: T
Question
The market for corn in country A is highly competitive. At the current market price of? $5/bushel there is a shortage of? 100,000 bushels of corn in this country. Media reports claim that the price of corn will rise drastically in the near future. According to these? reports, the neighboring country B had witnessed a similar situation recently. At the same? price, the shortage in country B was also? 100,000 bushels and eventually the equilibrium price in B went up to? $10/bushel. Both countries are known to have equal number of corn producers and the market supply of corn is identical at all prices.? This, combined with the fact that consumers in the two countries also have similar tastes and? preferences, led the media to conclude that the price of corn in country A would soon be as high as? $10/bushel.?? Which of the following is being assumed by the media while concluding that the price in country A will also rise to? $10/bushel?
A. Farmers will substitute the production of other agricultural goods? (like soybeans) with corn.
B. Price of other agricultural goods will rise.
C. The supply of corn in country A will decline in the near future.
D. Demand conditions in both countries are identical.
E. There are a number of substitutes available for corn in country A.
Explanation / Answer
It has been described that at 'similar' prices of $5 in each country, there are 'similar' shortages of demand of 100,000 bushels of corn at this price in both the countries. Also, it has been concluded from this that the taste and preferences in both the populations is 'similar'. Thus, the consumers in both countries are identical, thereby forming 'identical demand conditions for corn in both the countries'.
Thus, as a result, the suppliers in country A will also increase their prices due to high quantity demanded. Thus, the price levels will increase in country A. As this price level increases, the quantity demanded will fall. The equilibrium will eventually be established at $10 a bushel.
Thus, the correct answer is option D. Demand conditions in both countries are identical.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.