Tuesday, February 3, 2015

Changes in Agricultural Products and Supply

A few years ago the Wall Street Journal reported that farmers were switching from growing cotton to growing corn or soybeans since the price of cotton was falling.  This is exactly what the supply relationship tells us.  If the producer has more than one output, as the price of one of those goods falls (cotton), the producer switches to produce another good (corn or soybeans).  In terms of supply, as the price of cotton falls the QUANTITY supplied of cotton decreases, and the supply of either corn or soybeans shift to the right.

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