Corn

Only available on StudyMode
  • Download(s) : 489
  • Published : April 16, 2012
Open Document
Text Preview
Demand for Corn
If the demand for corn increases due to its use as an alternative energy source, the supply of corn substitute like soybean would decrease. This would happen because as the demand of corn rises, the price of corn would rise. Therefore the producers of a substitute like soybean would start producing corn instead of the soybean considering that they both have the same farmland. The producers of soybean will expect to make more profit by selling corn at a higher price assuming the cost of production remains the same. Therefore the quantity supplied of substitute such as soybean would reduce.

Price of Corn
The price increase of corn would lead to an increase in the price of corn oil. Corn will act as a high raw material cost in producing corn oil. Moreover as the demand for corn is to be used in the production of alternate energy rises, the total quantity supplied for production of corn oil would decrease initially whereas the quantity demanded for corn will remain the same and hence the price of corn will rise which ultimately cause the price of corn oil to rise.

Price of Elasticity
The price elasticity of demand for corn oil will eventually lead to a decrease in demand for corn oil and hence as the demand decreases, sales will drop and total revenue earned by sellers of corn will decline. In the market there are many available substitutes for a product like Corn oil. Corn oil is not a necessity for life and can be substituted with other related products. In this case soybean oil would be a close substitute for corn oil. Hence as with the price elasticity of demand, increase in price of the corn oil would lead to decrease in demand of the corn oil as the consumers will switch from high priced corn oil to the cheaper substitute soybean oil. In effect with the decrease in demand of corn oil the sales would fall leading to a decrease in the Total revenue earned by the sellers of corn oil.
tracking img