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7.   According to the weekly wheat review on farmprogress.com this summer there were threats to wheat crops...

7.   According to the weekly wheat review on farmprogress.com this summer there were threats to wheat crops across Europe to the Black Sea, as well as in Australia, and farmers and consumers acted and planned  accordingly.  However, These threats did not materialize to the degree predicted, and further, wheat farmers in the rest of the world had a larger harvest than anticipated.  Which of the following statements is true?  

  1. The news would have increased demand, as buyers anticipated higher future prices, resulting in higher initial prices.
  2. The news would have decreased supply, as sellers, anticipating higher future prices, move current supply into storage and invest in greater future production, resulting in higher initial prices.  
  3. The unanticipated abundance in wheat amounted to a rightward shift in the supply curve, resulting in lower wheat prices in the end.  
  4. All of the above are true.  
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Question 7

It has been stated that it was expected that the wheat yield would be lower this summer in Europe and Australia.

This will induce the consumers to increase their demand for wheat in current time period as they will expecte lower supply in future time period. This increase in demand in current time period will result in increase in price of wheat in current time period.

Secondly, farmers will be induced to cut back the current supply as they will feel that in future they could get higher price on back of reduced supply due to lower yield. As farmers will cut the current supply, the current price of wheat will rise.

However, it is stated that the threat of lower yield does not get materialized to the degree predicted.

Also, the production in other parts of the world increased at significant rate.

So, eventually supply got increased substantially resulting in lower wheat price.

Thus,

The correct answer is the option (d).

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