Question

Suppose that lower production costs increases the supply of wheat, such that more wheat is supplied at each price level. After the increase in supply, the equilibrium quantity _____.
a) increases
b) decreases
c) stays the same

Answer 1

Based on the graph, the answer to the question mentioned above is "Equilibrium Quantity Increases" which is the letter "A" in the choices. Suppose that the lower production costs increase the supply of wheat such that more wheat is supplied at each price level. After the increase is supply, the equilibrium quantity increases.

Answer 2

When the demand and supply curve intersect, that is, where the quantity demanded and quantity supplied are equal, the market is said to be in equilibrium. Thus, the given quantity is equilibrium quantity.

From the graph, we see that when the production cost of wheat is $4, the equilibrium quantity is 600 units.

When the production cost lowers from $4 to $3, the supply of wheat increases, such that the equilibrium quantity increases from 600 units to 800 units.

Thus, after an increase in supply, the equilibrium quantity increases.

So, Option A is the correct answer.