Question

If the current equilibrium price for a bushel of corn is $50.00, what happens to the equilibrium price of corn if import restrictions on corn are lifted?

Answer 1

It depends on the price of the imported corn and people's preference and taste for such corn.

If the imported corn is cheaper than the domestically produced corn (let's call it 'local corn from now on') and if the imported corn is in great supply, then the price of local corn will have to be lowered to be competitive with the imported corn. Everything else held constant, people would prefer to buy cheaper corn than more expensive ones.

People's preference also plays a part in determining the demand and hence the price of local corn and imported corn. If the imported corn is of inferior quality, then people would still prefer to buy the local corn which has better quality. This is provided that the people can afford the 50 dollar per bushel price tag. Hence, the impact of imported corn on the price of local corn will be minimal. Most likely, the low income groups would buy the cheaper imported corn.

A similar line of argument can be applied to the imported corn, for instance, if the imported corn is more expensive than the local corn, but because of its better quality, high income groups would buy the imported corn. This would reduce the demand for the local corn, resulting in the decrease in the price of the local corn.

Answer 2

@DanLibriPark Corn is viewed as a commodity and I don't think the question intends for you to take into consideration quality. It is usually viewed as a homogeneous good.

This question is quite simple. If import restrictions are lifted, the supply of corn increases. This will lead to a shift in the supply curve of corn (all else equal) and the equilibrium price of a bushel of corn will decrease as a result.