Drought Hits the Wheat Crop
A weather shock shifts supply left, raising price and cutting quantity, with revenue depending on elasticity.
Drought Hits the Wheat Crop
Supply and DemandA weather shock shifts supply left, raising price and cutting quantity, with revenue depending on elasticity.
Equilibrium at Quantity 57, Price ($) 44
Start in equilibrium
The wheat market begins in equilibrium at the going price and harvest size.
Now try it yourself: shift the curves in a graded FRQ drill, or open this graph in the free sandbox.
Drought Hits the Wheat Crop, step by step
- 1
Start in equilibrium
The wheat market begins in equilibrium at the going price and harvest size.
- 2
Drought destroys part of the crop
A severe drought cuts yields. At every price there is simply less wheat available, so supply shifts left. Nothing about buyers has changed.
- 3
Price rises sharply
Because demand for a staple food is inelastic, buyers do not cut back much when the price rises. A small fall in quantity therefore needs a LARGE rise in price to clear the market, which is why food prices move so violently after a bad harvest.
- 4
What happens to farm revenue
Revenue is price times quantity. With inelastic demand the price rises proportionally more than quantity falls, so total revenue for the crop can rise even though less wheat was grown. Individual farmers who lost their whole crop are still worse off; the result is about the market total.
Where it ends up
Price rises and quantity falls, and because demand for a staple is inelastic, farm revenue can actually rise.
Now draw it yourself
Same graph, graded on whether you move the right curve and leave the rest alone.
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