Question

Consider the market for wheat, which is currently in equilibrium. Then, the following happens: The wages of laborers in wheat farms increase . If the change given is the only change that happened (all other things are held constant), what will be the effect on the equilibrium?

a. Price of wheat decreases, Quantity of wheat increases

b. Price of wheat increases, Quantity of wheat increases

c. Price of wheat decreases, Quantity wheat decreases

d. Price of wheat increases, Quantity of wheat decreases

e. None of the above

Answer 1

The increase in the wages of the farms will increase the input costs for wheat and thus decrease the profitability for wheat growers. The producers or farmers will now be les interested in growing wheat, thereby decreasing supply of wheat in the market. The supply curve of wheat will shift to the left. This will result in equilibrium shifting to the upward left side. The equilibrium quantity will fall and equilibrium price will increase.

The correct option therefore should be "d. Price of wheat increases, Quantity of wheat decreases".