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A farmer can grow either wheat or corn on the same land. If the market price of corn rises sharply while the price of wheat is unchanged, the supply of wheat is most likely to:
Aincrease as the farmer expands all crops
Bstay the same since wheat's price is unchanged
Cincrease because corn and wheat are complements
Ddecrease as land is shifted to growing corn
Answer & Solution
Correct answer: D. decrease as land is shifted to growing corn
1. Wheat and corn compete for the same land, a related good in production.
2. A higher corn price makes corn more profitable to grow.
3. The farmer draws land away from wheat into corn, so less wheat is offered.
4. Supply of wheat decreases. Wheat's own price is unchanged, so 'stay the same' wrongly ignores the related-good effect.
_Source: ICAI BoS CA Foundation Paper 4 Business Economics, Ch 2 Unit III "Supply", p.1_
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