Question

Consider the world market for wheat, in which Russia is a larger producer. Suppose there is a major failure in Russia's wheat crop due to a severe drought. Explain the likely effect on the equilibrium price and quantity in the world wheat market. Also, explain why Canadian wheat farmers certainly benefit from this drought.

Answer 1

Due to major failure in wheat crop, the supply of wheat crop will shift backwards because Russia is a major supplier of wheat. This backward shift in the world market will lead to higher equilibrium price and lower equilibrium quantity.

This situation is beneficial for the Canadian wheat farmers. This is because the reduction in wheat supply from the Russian side will give the Canadian farmers chance to supply their wheat in the world market and benefit from the situation.