Part 1
The market for corn in country A is highly competitive. At the current market price of $5/bushel, there is a shortage of 100,000 bushels of corn in this country. Media reports claim that the price of corn will rise drastically in the near future. According to these reports, the neighboring country B had witnessed a similar situation recently. At the same price, the shortage in country B was also 100,000 bushels and eventually the equilibrium price in B went up to $10/bushel. Both countries are known to have an equal number of corn producers, and the market supply of corn is identical at all prices. This, combined with the fact that consumers in the two countries also have similar tastes and preferences, led the media to conclude that the price of corn in country A would soon be as high as $10/bushel.
If the new equilibrium price turns out to be below $10/bushel, which of the following inferences can be drawn?
A. The average income level of people in country A must be lower than country B.
B. The quantity demanded at the new equilibrium in country A must be higher than the equilibrium quantity demanded at $10/bushel in country B.
C. The demand curve for corn must be flatter in country A than in country B.
D. The supply curve of corn must have shifted to the right.
E. The per capita consumption of corn in country A must be lower than country B.