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Week 2 Assignment Butler Jeremy
Week 2 Assignment Butler Jeremy
Jeremy D. Butler
Barbara Son
Introduction
In a hypothetical situation, this short essay takes a look at what will happen to the supply
of corn if the demand for it increases due to its use as an alternative energy source. It will also try
to answer the question of what might happen to substitutes of fuel grade corn such as soybeans,
In a country richly dependent on fossil fuels where the quest for alternative energy
sources such as corn oil is ongoing, an unexpected consequence has ensued: a rise in food costs
(Rosenwald, 2007). Many may question why the rise in fuel for our vehicles would correlate to a
rise in cost for fuel for our bodies such as beef, milk, cereal, eggs, and poultry and pork products
(The Canadian, n.d.). It is explainable when we correlate the relationship between the costs in
terms of price elasticity of demand, or the measure of responsiveness of the quantity demanded
of a good or service to a change in price The inelastic increased fossil fuel costs are passed on to
the consumer and are translated in higher food prices which in turn decreases the quantity
demanded of food products, not the actual demand. This also translates to a slower rise in overall
costs so that producers can make up for lost profits (Slavin, 2009).
Opportunity Costs
Many farmers who utilize the same resources to grow other crops might see an
opportunity cost in growing fuel grade corn. Farmers who chose to switch crops to grow corn oil
instead of corn complements such as soybean will see an increase cost to change soil conditions,
equipment, and lose potential profits in their main producers. Depending on the unit price for
certain goods, farmers may choose to shift their focus for the more forecasted profitable product
WEEK 2 ASSIGNMENT 3
and earn a higher profit for the season. If this trend is widespread, prices of corn oil could be
adversely affected; unit price could fall with a flood of corn to the market. Other determinants of
price could be the quality of harvest, the availability of corn seed, and the demand for corn oil as
an alternative fuel.
Conclusion
In economic terms, it is easy to draw a picture of how prices of fuel grade corn are
affected by many factors such as the inelastic costs of fossil fuels, substitute crops, the quantity
of demand of a product or service, and other determinants of price. Prices of fuel grade corn
might see shifts left or right depending on quality of harvest, flood of corn to the market,
quantity of demand shifts due to other costs, and inelastic costs associated with supplying the
corn demand.
WEEK 2 ASSIGNMENT 4
References
The Canadian, P. (n.d). Rising food, gas prices a worry, CEO says. Toronto Star (Canada).
Rosenwald, M. (2007). The rising tide of corn. Washington Post. Retrieved from EBSCOhost.