Other things being equal, suppose that the demand for wheat in constant quality units increases. The increase in demand will cause
A) a surplus of wheat.
B) a higher equilibrium price and higher equilibrium quantity of wheat.
C) fall in the market clearing price of corn, a substitute for wheat.
D) a higher equilibrium quantity, but a lower equilibrium price of wheat.

Question

Quizplus · Accepted Answer

An increase in demand for wheat will shift the demand curve to the right, causing an increase in both the equilibrium price and quantity of wheat. This is because the increase in demand will create a shortage, leading to a bidding up of the price until the quantity demanded equals the quantity supplied at the new equilibrium point. There is no reason to expect a surplus of wheat or a decrease in the price of a substitute good like corn. There is also no reason to expect a decrease in the equilibrium price, as the increase in demand will put upward pressure on price.

Other Things Being Equal, Suppose That the Demand for Wheat