Corn Pays Better Than Soybeans
Corn prices jump, so farmers move acreage out of soybeans and the soybean supply curve shifts left.
Corn Pays Better Than Soybeans
Supply and DemandCorn prices jump, so farmers move acreage out of soybeans and the soybean supply curve shifts left.
Equilibrium at Quantity 57, Price ($) 44
Start in equilibrium
The market for soybeans begins in equilibrium where supply and demand cross. At that price the amount farmers want to sell matches the amount buyers want to buy, so nothing is pushing price up or down.
Now try it yourself: shift the curves in a graded FRQ drill, or open this graph in the free sandbox.
Students predict what happens before the graph moves. No accounts, nothing graded.
Corn Pays Better Than Soybeans, step by step
- 1
Start in equilibrium
The market for soybeans begins in equilibrium where supply and demand cross. At that price the amount farmers want to sell matches the amount buyers want to buy, so nothing is pushing price up or down.
- 2
Corn prices jump
The price of corn rises sharply. Corn and soybeans are substitutes in production, meaning the same field and the same equipment can grow either one. Farmers move acreage into the crop that now pays better, so at every soybean price they are willing to grow fewer soybeans. Supply shifts left.
- 3
A shortage appears
At the original soybean price, buyers still want the old quantity but farmers will now supply less. That gap is a shortage, and it is what forces the price of soybeans upward.
- 4
New equilibrium
As the price rises, some buyers drop out and move up along the unchanged demand curve, while the higher price persuades farmers to keep a little more land in soybeans. The market settles at a higher price and a smaller quantity.
- 5
Production, not consumption
Corn and soybeans are substitutes on the SELLER side, not the buyer side. Nobody stopped wanting soybeans, so demand never moved. Mixing this up with a consumption substitute, where a price change shifts demand instead, is the most common way to lose the point.
Where it ends up
When the price of a substitute in production rises, supply of the other good shifts left, so the equilibrium price of soybeans rises and the equilibrium quantity falls.
Now draw it yourself
Same graph, graded on whether you move the right curve and leave the rest alone.
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