Problem 4 "The price of a bushel of wheat,... [FREE SOLUTION]

Chapter 3: Problem 4

"The price of a bushel of wheat, which was $$\$ 3.00$$ last month, is $$\$ 3.70$$ today. The demand curve for wheat must have shifted rightward between last month and today." Discuss.

Short Answer

Expert verified

The statement is a hypothesis and not necessarily true. While it is possible that the demand curve for wheat may have shifted rightward leading to the price increase, it could also be a case of the supply curve shifting leftward or both. Further information such as changes in the quantity demanded and supplied is required to conclusively say that the demand curve shifted rightward.

Step by step solution

Understand the Situation

To begin, you need to understand the situation. Examining the statement, we can see that the price of wheat has risen, but there is no information on the change in quantity demanded.

Analyze Demand Curve Shift

In general economics, the law of demand suggests that as the price of a product increases, the quantity demanded decreases, assuming all other conditions remain constant. However, if quantity demanded rises along with the price, it indicates a rightward shift in the demand curve. The notion behind this shift is an increased desire of consumers to buy the product, which could be due to various reasons like change in consumer preferences, rise in income, etc.

Examine Alternative Possibilities

While the statement suggests a rightward shift in demand as a possible reason for the price increase, this is just a hypothesis. Other possibilities could include a leftward shift in the supply curve, possibly due to a decrease in the production of wheat. This could cause the price to rise due to a decrease in supply while demand remains the same. Therefore, without additional information on the quantity demanded and supplied, it is not certain that the demand curve necessarily shifted rightward.