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What happens in the market for corn if the government decides to subsidize farmers?
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3. Supply and Demand
Overview of Supply and Demand Shifts
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What happens in the market for corn if the price of wheat, a substitute in production, decreases?
A
Demand shifts to the left
B
Demand shifts to the right
C
Supply shifts to the left
D
Supply shifts to the right
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Identify the relationship between corn and wheat. They are substitutes in production, meaning that producers can switch between producing corn and wheat based on profitability.
Understand the effect of a decrease in the price of wheat. When the price of wheat decreases, it becomes less profitable for producers to grow wheat compared to corn.
Analyze the impact on the supply of corn. As wheat becomes less profitable, producers are likely to allocate more resources to growing corn instead.
Determine the shift in the supply curve. With more resources allocated to corn production, the supply of corn increases, causing the supply curve to shift to the right.
Conclude that the correct answer is that the supply of corn shifts to the right, as producers respond to the decreased profitability of wheat by producing more corn.
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