Supply, Demand and Price Elasticity Paper

Topics: Supply and demand, Elasticity, Price elasticity of demand Pages: 3 (1128 words) Published: May 13, 2012
Every day people use products without thinking about the significance of that particular product. Many people do not realize how important these products are and how much one product that is used every day affects the economic status of not only the country but the world. Wheat is used to make a large number of products which include beer and bread. The next few pages of this report will discuss how supply and demand for wheat shifts, how it affects price, and whether or not wheat is a luxury or a necessity will also be analyzed. Wheat, a main staple in food and a source for many products, is a global commodity with diverse supply availability and changing demands. Each country has its own production, consumption and exportation of wheat that are affected by crop specific factors such as fuel prices, weather conditions, labor costs, stock costs, etc. There are rather large amounts and different kinds of wheat being produced in the same country and relatively close in locations; all of which are tracked individually. Recently there has been a decline in the stocks-to-use ratio: “The world wheat stocks-to-use ratio, which is the ratio of the projected ending stocks and projected total use or demand in a season, at 26.78% is lower than last year's ending ratio of 30.29% but higher than the 2008 all-time low of 20.21%” (Seeking Alpha, 2011). Causes for shifts in supply and demand of wheat have been identified as Crop conditions deteriorating in the previous month's domestic wheat outlook. If the crop condition continues to deteriorate, potentially lowering the harvest yield and crop quality, prices could move even higher. However, improving domestic wheat crop conditions combined with a stabilizing global supply and demand picture may signal a price top in wheat. Prices in perfectly competitive markets are determined by the interaction of demand and supply. The actions of any single consumer or any single firm has no effect on the market price. Consumers and firms...
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