Question 2

Although volumes are down in America, farm incomes are up. What does this imply about the
nature of the demand for the wheat and similar products? Explain your answer, making use of the
relevant economic concept.
Nature of demand simply means the determinant of the demand.
In this case, we are going to be presentation on the determinants.
Starting off with the first determinant, it is .
The price of wheat
In this assignment, price of wheat depends on the environmental factor, which in return will
determine the cost of its production. The higher the price of the wheat product, the lower the
demand of it. Between the price of the wheat and the quantity that is willing to be bought by the
consumer, there lies an inverse relationship. Consumers want to purchase more items at lower
prices rather than higher prices. Based on the article, it states that price of wheat will increase
due to seasonal factors. Therefore, we expect the demand of it to fall.
Price of related goods
(a) Substitute goods are items or services that can be used to replace the existing
product.
The effect of the price of substitute goods on demand for wheat product is great. Great
because there are other substitutes for wheat like meat, dairy products and etc. If the price
of those substitutes falls, users will consume more of those product rather than wheat
product.
PWheat
(i)

Qdd Wheat

DDSubstitute Goods

Complementary goods are items that are used in dependently with another
product.

Expectations
Expectations on future prices and incomes movement affect the demand of a particular good, in
this case, the wheat. Consumers will start purchasing wheat before a hike in price if the
consumer expects the price of what to increase in future; therefore they will definitely start
spending some percentage of their income on wheat today. Based on the article, it expected that
the price of wheat and similar products would increase and farm incomes would go up which
eventually would spark an investment boom as stated.