A severe drought results in a drastic fall in output of wheat. Analyse how will it affect the market price of wheat?
As a result of severe drought, the output of wheat is reduced. It means the supply of wheat in the market will reduce causing a shift of supply curve to the left. Accordingly, market price of wheat will increase. As shown in the figure, {{OP}_{1}} is the new market price of wheat after the supply curve shifts to
{{S}_{1}}
{{S}_{1}} and equilibrium quantity has decreased to
{{OQ}_{1}}
