Running head: WEEK 2 ASSIGNMENT 1

Week 2 Assignment: The Elasticities of Demand and Supply

Jeremy D. Butler

Devry University/Chamberlain College of Nursing

ECON312: Principles of Economics

Barbara Son

Spring Session B, 2011

WEEK 2 ASSIGNMENT 2

The Elasticities of Demand and Supply

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,

and explain possible determinants of price.

The Price of Corn in Ohio

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).

Retrieved from EBSCOhost.

Rosenwald, M. (2007). The rising tide of corn. Washington Post. Retrieved from EBSCOhost.

Slavin, S. (2009). Economics, 9th Ed. New York: McGraw-Hill.