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Figure 15.2 Supply-Side Input Links across Industries
(a) The increase in the demand for corn shifts demand from Dc1 to Dc2. As a result, the quantity of corn increases from Qc1 to Qc2, and the price of corn increases from Pc1 to Pc2.(b) The increased demand for corn causes farmers to shift some of their production from wheat to corn. Consequently, the supply of wheat shifts in from Sw1 to Sw2. The quantity of wheat decreases from Qw1 to Qw2, and the price of wheat increases from Pw1 to Pw2. The resulting increase in the wheat price feeds back in turn to the corn market, shifting the supply of corn from Sc1 to Sc2, reducing the quantity of corn to Qc3 and raising its price to Pc3, because of increases in the price of inputs into corn production.