What will happen to the supply of soybeans if the demand for corn goes up?If demand for corn increases due to its use as an aalternative energy source, what will happen to the supply of corn's...

What will happen to the supply of soybeans if the demand for corn goes up?

If demand for corn increases due to its use as an aalternative energy source, what will happen to the supply of corn's market substitutes such as soybeans?

Asked on by talston

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted on

In this case, the supply of soybeans will go down.  Here is how that works.

First, when the demand for corn increases, farmers will want to grow more corn.  This will not increase the supply of corn, but it will increase the quantity supplied because the equilibrium price and quantity of corn will go up as the demand curve moves to the right.

Second, the increase in the quantity supplied of corn will decrease the supply of soybeans.  This is because, as you say, soybeans and corn are substitutes -- farmers can plant one or the other.  If you are a farmer, and you know the price of corn will be going up, you will plant more corn and fewer soybeans.  In such a case, the supply of soybeans will go down because the demand for corn went up.

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