Econ Commentary on Supply and Demand

Topics: Supply and demand, Externality, Pigovian tax Pages: 2 (730 words) Published: November 1, 2010
Grains are very important for a healthy diet. It is commonly consumed by people and is used for many foods. In the article the supply of grains, wheats, and soybeans were destroyed by a drought near the Black sea. So the agribusiness division would sell and transport these grains and oilseeds to those who demand it. Of course the demand for these grains from this division would increase because those who were in need of those crops near the Black Sea would turn to the imports of these grain. When the demand for these grains increased so did the demand for the working capital. The companies would pay farmers more so that they can meet the margin calls. This caused a negative cash flow which led to charges. These charges caused net profits to fall.

In the article Gregory Meyers states the effects of grains price. These effects led to agribusiness division, which buys, sells, transports, and stores grains and oilseeds. This led to an increase in demand for imported corn, wheat, and soybeans as shown in Figure 1.1. The demand increased because there was a drought that devastated the grain crops near the Black sea lowering their supply of grains, so people would turn to notable China for these imported goods.

Usually if people didn’t turn to China for these grains they would face a shortage because people are demanding these three grains that they can’t supply. A shortage is when the quantity demand exceeds the quantity supply which is shown in Figure 1.2. However, this agribusiness increased the supplies which sent grain prices higher. Corns price raised 41 %, Soybeans price raised 19%, and wheat’s price raised 33% in the year 2010. Based on the law of demand, when Price increases for a good, the quantity demanded for that good decreases.

The rising of the prices increased the demands for the working capital. The company would pay farmers more to meet margin calls in the future markets, resulting in negative cash flow. The demands for these imported...
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