Suppose that the price of a substitute for wheat increases. At the same time, the cost of resources used in producing wheat falls. The likely results in the wheat market would be:

Question

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When the price of a substitute for wheat increases, demand for wheat is likely to increase because consumers may switch to wheat as a more cost-effective alternative. This would tend to increase both the price and quantity of wheat in the market. At the same time, if the cost of resources used in producing wheat falls, this would lead to an increase in the supply of wheat because it becomes cheaper to produce. An increase in supply tends to lower the price but increase the quantity of wheat sold. The combined effect of these two changes makes it clear that the quantity of wheat exchanged in the market will increase (due to both increased demand and increased supply), but the effect on the price of wheat is ambiguous because the demand effect tends to increase price, while the supply effect tends to decrease it.

Suppose That the Price of a Substitute for Wheat Increases