Question

Consider the market for corn. Indicate whether each of the following events will cause a shift in the demand curve or a movement along the curve. If it will cause a shift, specify the direction. a. A drought hits corn-growing regions, cutting the supply of corn: . b. The government announces a new subsidy for biofuels made from corn: . c. A global recession reduces the incomes of consumers in poor countries, who rely on corn as a staple food (assuming corn is a normal good): . d. A new hybrid variety of corn seed causes a 15 percent increase in the yield of corn per acre: .

Answer 1

Answer:

a) MOVEMENT ALONG THE CURVE

b) MOVEMENT ALONG THE CURVE

c) SHIFT TO THE LEFT

d) MOVEMENT ALONG THE CURVE

Explanation:

There is a MOVEMENT ALONG THE CURVE when there is a variation in the price of the good.

On the other hand, there is a SHIFT when any of the variables other than the price of the good changes (for example: the income of the consumers, the tastes of the consumers, the prices of related goods -substitutes or complementary-, the size of the market). When the curve shifts to the left this indicates a decrease in demand. When it moves to the right it indicates an increase in demand.  

a) A drought hits corn-growing regions, cutting the supply of corn. MOVEMENT ALONG THE CURVE. The decrease of the offer will cause an increase in the price, and consequently a decrease in the quantity demanded.

b) The government announces a new subsidy for biofuels made from corn. MOVEMENT ALONG THE CURVE. As a result of the subsidy, the demand for corn by biofuel manufacturers will increase, which will cause an increase in the price of corn, and consequently a decrease in consumer demand.

c) A global recession reduces the incomes of consumers in poor countries, who rely on corn as a staple food (assuming corn is a normal good). A SHIFT TO THE LEFT IN THE DEMAND CURVE. The reduction of income will cause a decrease in demand.

d) A new hybrid variety of corn seed causes a 15 percent increase in the yield of corn per acre. MOVEMENT ALONG THE CURVE. Corn supply increases and consequently the price decreases, which causes an increase in demand.