Question

Draw a graph to analyze the market for agricultural products (food). Label your price and quantity axes properly. In your graph, draw a supply curve for agricultural products (food) that obeys the law of supply. Label (S). In the same graph, draw a demand curve for food that obeys the law of demand. Label (D). Identify the market equilibrium point in your graph and label (E). Also, label the equilibrium price (PE) and the Equilibrium quantity (QE):

1. Using supply/demand analysis, explain why food prices declined in the United States in the 1920s. Use your above graph to illustrate the change in the market equilibrium price. Clearly label the original and new equilibrium price and explain your graphical analysis in words.

Answer 1

Below is the market for agricultural products (food) with supply curve for agricultural products (food) being upward sloping and a demand curve for food being downward sloping. The market equilibrium is at E showing the equilibrium price (PE) and the Equilibrium quantity (QE).

The economy experienced food prices decline in the 1920s. This was resulted from the increased production in aftermath of world war 1 when production of major crops increased rapidly to supply food for the military. This caused the supply curve to shift to the right. As a result there was a new equilibrium established at F. Here price is reduced to P1 and quantity is increased to Q1.