Question

supply and demand practice set
instructions: read the following scenarios and answer the question in the space provided.
scenario graph (draw original supply + demand lines, add the shift, be sure to mark s¹ and d¹ and d² or s² as needed, plus equilibrium points) supply or demand change? (circle) price - ↑ or ↓ quantity - ↑ or ↓ why is there a change? (merit)
soybean oil can now be used as a renewable ingredient in the production of biodiesel fuel.
wheat is grown primarily to be ground into flour. drought results in low wheat yields.
the bird flu infects thousands of egg farms, and many laying hens are lost.
the nutrition of feed for dairy cows improves, leading to a significant increase in milk production.

Explanation:

Step1: Analyze soybean - oil scenario

Since soybean oil has a new use in biodiesel production, producers have an incentive to produce more due to increased profitability. So supply increases (shift of supply curve to the right). At the same time, if some of the soybean - oil is diverted to biodiesel production, less is available for other uses, demand may decrease. This leads to an ambiguous effect on price, but quantity supplied increases.

Step2: Analyze wheat scenario

Drought reduces wheat yields. This means less wheat is available in the market, so supply decreases (shift of supply curve to the left). If the demand for wheat - based products remains the same or decreases due to higher prices, both price and quantity will decrease.

Step3: Analyze egg scenario

Bird - flu infecting egg farms and loss of laying hens reduces the number of eggs that can be produced, so supply decreases (shift of supply curve to the left). Consumers may also be less willing to buy eggs due to health concerns, so demand decreases (shift of demand curve to the left). The effect on price is ambiguous, but quantity will decrease.

Step4: Analyze milk scenario

Improved nutrition of dairy - cow feed leads to more milk production, so supply increases (shift of supply curve to the right). If there is no immediate change in consumer preferences or income, demand may remain the same or decrease due to lower prices in the future. This leads to a decrease in price and an increase in quantity.

Answer:

Scenario	Graph	Supply or Demand Change	Price - ↑ or ↓	Quantity - ↑ or ↓	WHY is there a change?
Wheat is grown primarily to be ground into flour. Drought results in low wheat yields.	Draw original S and D lines. Shift S to S1 (left - ward shift). Mark equilibrium points.	Supply: Decrease, Demand: Decrease	Decrease	Decrease	Drought reduces supply, potential price - induced demand decrease
The bird flu infects thousands of egg farms, and many laying hens are lost.	Draw original S and D lines. Shift S to S1 (left - ward shift) and D to D1 (left - ward shift). Mark equilibrium points.	Supply: Decrease, Demand: Decrease	Ambiguous	Decrease	Supply reduced due to bird - flu, demand reduced due to health concerns
The nutrition of feed for dairy cows improves, leading to a significant increase in milk production.	Draw original S and D lines. Shift S to S1 (right - ward shift). Mark equilibrium points.	Supply: Increase, Demand: Decrease	Decrease	Increase	Improved feed leads to more production for supply, potential price - induced demand decrease