Equilibrium Paper
Equilibrium Paper
By: Brandon Walker
ECO/561
July 14, 2014
Instructor: Mark Erenburg
This paper was written to describe a real world experience in a free market were change occurred in supply or demand as a result of world events that led to the need for a move between two equilibrium states. I will also explain the process of how that movement occurred using behavior of consumers and suppliers while using graphs as indicated.
Real Word Experience
According to a United Nations’ monthly Food Price Index, In July 2012, food prices jumped 6% because of grain prices, specifically corn prices (Smith, 2012). According to this report, global corn prices jumped to almost 23%, due to the a severe degrade of maize crop prospects in the United States, following drought conditions and excessive heat during critical stages of the crop development (Smith, 2012). According to Yousuf (2012) corn prices high a record high of $8.28 per bushel due to the drought.
The Law of Demand, The Law of Supply and the Determinants
The Law of Demand states “As price falls, the quantity demanded rises, and as price rises, the quantity demanded falls. In short, there is a negative or inverse relationship between price and quantity demanded” (McConnell, Brue, & Flynn, 2009). The Law of Supply states “As price rises, the quantity supplied rises; as price falls, the quantity supplied falls” (McConnell, Brue, & Flynn, 2009).
In my real world example, food prices increased, ultimately because of the drought, which limited the supply of corn. This in turn decreased the demand for corn. Given there is a low supply and a high demand, the prices are high. The determinants are the prices of related goods (as the price of corn increases, the price of food jumps), consumer and producer expectations (consumers are wanting corn because it is limited and producers are unable to provide enough corn), and the number of sellers in the market (given the
By: Brandon Walker
ECO/561
July 14, 2014
Instructor: Mark Erenburg
This paper was written to describe a real world experience in a free market were change occurred in supply or demand as a result of world events that led to the need for a move between two equilibrium states. I will also explain the process of how that movement occurred using behavior of consumers and suppliers while using graphs as indicated.
Real Word Experience
According to a United Nations’ monthly Food Price Index, In July 2012, food prices jumped 6% because of grain prices, specifically corn prices (Smith, 2012). According to this report, global corn prices jumped to almost 23%, due to the a severe degrade of maize crop prospects in the United States, following drought conditions and excessive heat during critical stages of the crop development (Smith, 2012). According to Yousuf (2012) corn prices high a record high of $8.28 per bushel due to the drought.
The Law of Demand, The Law of Supply and the Determinants
The Law of Demand states “As price falls, the quantity demanded rises, and as price rises, the quantity demanded falls. In short, there is a negative or inverse relationship between price and quantity demanded” (McConnell, Brue, & Flynn, 2009). The Law of Supply states “As price rises, the quantity supplied rises; as price falls, the quantity supplied falls” (McConnell, Brue, & Flynn, 2009).
In my real world example, food prices increased, ultimately because of the drought, which limited the supply of corn. This in turn decreased the demand for corn. Given there is a low supply and a high demand, the prices are high. The determinants are the prices of related goods (as the price of corn increases, the price of food jumps), consumer and producer expectations (consumers are wanting corn because it is limited and producers are unable to provide enough corn), and the number of sellers in the market (given the
References: McConnell, C.R., Brue, S.L., & Flynn, S.M. (2009). Economics (18th ed.). Retrieved from The University of Phoenix eBooks Collection database. Smith, A. (2012, August 9). U.S. drought drives up food prices worldwide. CNN Money. Retrieved from http://money.cnn.com/2012/08/09/news/economy/food-prices-index/ Yousuf, H. (2012, August 9). Corn prices rally to new record high. CNN Money. Retrieved from http://buzz.money.cnn.com/2012/08/09/corn-prices-record/?iid=EL