Price Elastic Products
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
production technology, and the price of other goods. Only when the quantity producers are willing and able to offer for sale at a certain price...