Fertilizer is used as an input in the production of soybeans. If the soybean market is in equilibrium and the price of fertilizer decreases then the supply of soybeans will:
A.Increase, initially leading to a shortage that will result in an increase in the equilibrium price of soybeans.
B.Decrease, initially leading to a surplus that will result in an increase in the equilibrium price of soybeans.
C.Increase, initially leading to a surplus that will result in a decrease in the equilibrium price of soybeans.
D.Decrease, initially leading to a shortage that will result in an increase in the equilibrium price of soybeans.
E.Decrease, initially leading to a surplus that will result in a decrease in the equilibrium price of soybeans.
Ans: C) Increase, initially leading to a surplus that will result in a decrease in the equilibrium price of soybeans.
Explanation:
Fertilizer is used as an input in the production of soybeans. If the soybean market is in equilibrium and the price of fertilizer decreases then the cost of production of soybeans will decrease. As a result the supply of soybeans will increase. So that the supply curve of soybeans shifts rightward. It leads decrease in equilibrium price of soybeans.
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