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Homework answers / question archive / What will happen to the equilibrium price and the equilibrium quantity of corn when the prices of corn seed and fertilizer fall? A

What will happen to the equilibrium price and the equilibrium quantity of corn when the prices of corn seed and fertilizer fall? A

Economics

What will happen to the equilibrium price and the equilibrium quantity of corn when the prices of corn seed and fertilizer fall?

A. The equilibrium price will rise and the equilibrium quantity will fall.

B. The equilibrium price will fall and the equilibrium quantity will rise.

C. The equilibrium price and the equilibrium quantity will rise.

D. The equilibrium price and the equilibrium quantity will fall.

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The answer is B).

Corn seeds and fertilizers are inputs for the production of corn. When the prices of corn seed and fertilizers fall, the unit cost of corn is lower, and any given price, producers are willing to supply more corn as the profit is higher now. Hence, the supply curve of corn shifts to the right. Holding demand constant, quantity will increase and the price of corn will fall. This is illustrated in the diagram below:

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