Let’s now return to the question posed at the beginning of this chapter: What hap- pens to wheat farmers and the market for wheat when university agronomists dis- cover a new wheat hybrid that is more productive than existing varieties? Recall from Chapter 4 that we answer such questions in three steps. First, we examine whether the supply curve or demand curve shifts. Second, we consider which di- rection the curve shifts. Third, we use the supply-and-demand diagram to see how the market equilibrium changes.
In this case, the discovery of the new hybrid affects the supply curve. Because the hybrid increases the amount of wheat that can be produced on each acre of land, farmers are now willing to supply more wheat at any given price. In other words, the supply curve shifts to the right. The demand curve remains the same because consumers’ desire to buy wheat products at any given price is not affected by the introduction of a new hybrid. Figure 5-8 shows an example of such a change. When the supply curve shifts from S1 to S2, the quantity of wheat sold in- creases from 100 to 110, and the price of wheat falls from $3 to $2.
But does this discovery make farmers better off? As a first cut to answering this question, consider what happens to the total revenue received by farmers. Farmers’ total revenue is P x Q
Let’s now return to the question posed at the beginning of this chapter: What hap- pens to wheat farmers and the market for wheat when university agronomists dis- cover a new wheat hybrid that is more productive than existing varieties? Recall from Chapter 4 that we answer such questions in three steps. First, we examine whether the supply curve or demand curve shifts. Second, we consider which di- rection the curve shifts. Third, we use the supply-and-demand diagram to see how the market equilibrium changes.
In this case, the discovery of the new hybrid affects the supply curve. Because the hybrid increases the amount of wheat that can be produced on each acre of land, farmers are now willing to supply more wheat at any given price. In other words, the supply curve shifts to the right. The demand curve remains the same because consumers’ desire to buy wheat products at any given price is not affected by the introduction of a new hybrid. Figure 5-8 shows an example of such a change. When the supply curve shifts from S1 to S2, the quantity of wheat sold in- creases from 100 to 110, and the price of wheat falls from $3 to $2.
But does this discovery make farmers better off? As a first cut to answering this question, consider what happens to the total revenue received by farmers. Farmers’ total revenue is P x Q
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