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ECONOMIC SKILLS LAB
APPLYING THE LAWS OF SUPPLY AND DEMAND
We can't actually see demand and supply curves, but they are all around us, shifting this way and that. We know this because we can observe the changes they produce in market-clearing prices.
1. The world population has been growing, and incomes have increased. Improved seeds, fertilizers, irrigation practices, and cultivation methods have increased the productivity of farms around the world. The prices of agricultural products like wheat and corn have fallen over the last 30 years.
Add a new demand curve (D2) and a new supply curve (S2) on the graph to the right to explain the situation described above.
2. In some countries government programs set prices for crops like wheat above market-clearing levels. Use the graph to the right to answer the following questions.
a. What effect do you think these government price policies have had on the amounts of these crops grown in these countries?
b. What effect do these price controls have on the amount of the crops demanded?
c. Would these government policies cause a shortage or surplus of crops?
3. Some people fear the world will soon experience widespread food shortages and soaring food prices. They argue that food supply will grow more slowly because many farms throughout the world are being converted to industrial parks and housing projects. At the same time, populations are growing and incomes are increasing.
Draw new supply and demand curves on the graph to the right to explain the situation described above. Add a new demand curve (D2) and a new supply curve (S2).
4. Others argue that the world's supply of grain is temporarily low because farmers in Russia and other former Soviet states have experienced political turmoil and bad weather. Also, farmers in the United States are seeing the end of government farm policies that kept prices of farm products artificially high. In future years, they see farmers worldwide making greater use of technology and scientific farming methods.
Explain what you think these people are expecting to happen to grain prices in the future.
