Question

Analyzing Effects What would happen to a wheat farmer who tried to sell his wheat for $2.50 per bushel if the market price were $2.00 per bushel? Why?

Answer 1

Agricultural products like wheat is coming under the prefect competition market. In perfect competition market the price is determined by the industry. The industry determines the price where the demand is equal to the supply. In the above situation the farmer is called as a firm. The firm is a price taker. The price in the market is $2 per bushel, which is determined by the industry. If the farmer will try to sell wheat at $2.5 per bushel he will definitely loose the consumers. It will create a condition of excess supply where the demand will be less than the supply. And to sell more the farmer has to reduce the price.