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The New York Times (newspaper) of September, 2014, reported on the drought that has influenced farmers in the Midwestern states

Economics Dec 12, 2020

The New York Times (newspaper) of September, 2014, reported on the drought that has influenced farmers in the Midwestern states. The article noted that the very dry weather conditions is forcing many farmers to plant 'dry crops' like sunflowers rather than 'wet crops' like melons. These actions would tend to (decrease / increase) the supply of sunflowers and (decrease / increase) the supply of melons.

A. Increase; increase.

B. Decrease; decrease.

C. Decrease; increase.

D. Increase; decrease.

Expert Solution

In September, 2014, the New York Times reported on the drought that has influenced farmers in the Midwestern states. The article noted that the very dry weather conditions is forcing many farmers to plant 'dry crops' like sunflowers rather than 'wet crops' like melons. These actions would tend to increase the supply of sunflowers and decrease the supply of melons.

One of the factors that will cause the supply curve to shift is a change in the cost of producing the good. Because of the drought, it's becoming more expensive to produce the 'wet crops', such as melons, since the firms will need to pay more for watering expenses. This will result in the entire curve shifting to the left, causing the equilibrium price to increase and quantity to decrease.

A second factor that will cause supply to shift is the profitability of other goods and services produced by the firm. Because the cost of 'wet crops' is increasing, the profitability of these goods will decrease. The firms will, therefore, shift away from these goods to ones where their profit margins are relatively higher. Because the 'dry crops' will perform better during droughts, they will become more profitable, so the firms will shift their resources towards these crops, resulting in an increase in supply for sunflowers.

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