Essay, Pages 3 (579 words)
Rising oil prices in the US are not a novel concept. Since the 1970’s when the US realized its vulnerability related to oil and its Eastern providers, we have sought energy alternatives (recession. org). This essay will review the concepts of supply, demand, quantity demand and price influence given the provided scenario wherein the demand for corn has increased due to usage as an alternative energy source. The essay will evaluate the effect of this on the substitute crop soybeans and how demand affects not only quantity but variety and use of resources such as land and labor.
Further, it will look at pricing implications of increased demand as well as price elasticity of demand and the ultimate outcomes measure of revenue earned by the corn oil sellers. Supply & Price In real economic scenarios, supply, price and demand work together. Supply for our purpose can be defined as the total amount of corn available for purchase. The law of supply tells us that the amount of corn offered by the seller will increase as the price increases, just as it will decrease as the price does if everything else is held constant (Boyes, 2008).
The law of demand factors in pricing and tells us that the higher the price of the corn, the lower the quantity demanded will be. In this provided corn/soybean scenario, suppliers/sellers may choose to alter the quantity of corn available through decisions about when to sell and how much additional product will be produced. With increased attention given to bio fuel usage, the number of suppliers could increase thereby increasing corn supply and driving down prices.
Supply determinants in this scenario could include the number of sellers at a given time, sellers expectations, resource price, Price Elastic Products 3 roduction technology, and the price of other goods. Only when the quantity producers are willing and able to offer for sale at a certain price meets with the demand curve does market equilibrium result. All other price and supply points plotted against price points on a given graph will represent disequilibrium, in economic terms. Once equilibrium is attained, suppliers and consumers have no incentive to move away from this point (Boyes, 2009). In response, suppliers could opt to produce alternative crops such as soybeans to fill unmet market needs or in response to declining prices secondary to market saturation.
Price Elasticity of Demand The price elasticity of demand is said to be a measure of buyers’ sensitivity to price changes ( Boyes, 2009). A product is said to be elastic when it’s demand reacts dramatically with fluctuations in price. Luxury good prices, even for something as simple as soda are often said to be highly elastic when there are multiple producers vying for the market. The reasons the price elasticity is so high on soda brands is the fact that they are a luxury and more there is stiff competition amongst various producers.
Luxury goods respond quickly when incomes drop, opposed to necessity goods such as gasoline, milk or produce. When incomes are low, people quickly give up on items that aren’t essential. Accordingly, the elasticity of the corn market is dependent on one’s use of the product. In production of many food items, high fructose corn syrup is a key ingredient and therefore considered essential to manufacturers. Its demand therefore could be considered inelastic. In the given scenario, soybeans can be considered substitute goods-that is they may be substituted for corn in some instances.