Friday, February 22, 2013

What will happen to the supply of soybeans if the demand for corn goes up?If demand for corn increases due to its use as an aalternative energy...

In this case, the supply of soybeans will go down.  Here
is how that works.


First, when the demand for corn
increases, farmers will want to grow more corn.  This will not increase the supply of
corn, but it will increase the quantity supplied because the equilibrium price and
quantity of corn will go up as the demand curve moves to the
right.


Second, the increase in the quantity supplied of
corn will decrease the supply of soybeans.  This is because, as you say, soybeans and
corn are substitutes -- farmers can plant one or the other.  If you are a farmer, and
you know the price of corn will be going up, you will plant more corn and fewer
soybeans.  In such a case, the supply of soybeans will go down because the demand for
corn went up.

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