Thursday, June 4, 2015

Supply and demand in action in the ethanol and corn markets

Here is a good example of supply and demand in action. We discuss supply and demand in action next week. If you Google search the title of the article, you can usually 

TOPICS: Environmental Regulation
SUMMARY: The federal mandate has driven up the price of corn-and of poultry, meat, eggs and dairy.
CLASSROOM APPLICATION: Students can evaluate the effect of the corn-ethanol mandate on the price of corn, the on prices of beef, pork, and chicken and on the profits of restaurants.
QUESTIONS: 
1. (Introductory) What is the effect of the federal corn-ethanol mandate on the price of corn?

2. (Advanced) What is the effect of an increase in the price of corn on the prices of beef, pork, and chicken?

3. (Advanced) What is the effect of an increase in the price of corn on the profits of restaurants? How does the answer depend on the price elasticity of demand for restaurant meals?

Reviewed By: James Dearden, Lehigh University
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1 comment:

  1. AnonymousFebruary 15, 2016 at 7:27 AM

    Do we really need ethanol in our gas tanks? No, of course not! Some people may say that ethanol cleans are gas for the environment and it helps reduce the need of oil, especially foreign oil. These ideas have truth and were the deciding factors for me personally when ethanol was introduced to every gas pump in America.
    My thoughts about ethanol have changed dramatically over the following years. Ethanol isn’t better for the environment and especially not corn produced ethanol. Ethanol created by sugar primarily used in Brazil is a lot healthier for the air compared to the ethanol produced by corn. Forbes states “Biofuels have direct, fuel‐cycle GHG emissions that are typically 30–90% lower than those for gasoline or diesel fuels.” The article goes on to say about how farmers are having to choose from growing for food or for fuel.
    The government mandate is creating an artificial world we are exporting less corn because it. Exports are very beneficial for the economy, as well it raises prices on many other goods in our US economy. Restaurants feel the pain because they typically eat the extra expense due to extreme competition in the food industry.
    It’s honestly a no brainer, since the government mandate American farmers have exported less corn. This means less money for the farmers, as well as less food on the world market in general. It’s creating higher prices for Americans entrepreneurs in the food industry. The United States congress needs to put ethanol back in the private markets and let it compete for its corn just like everyone else.


    References
    http://www.forbes.com/sites/jamesconca/2014/04/20/its-final-corn-ethanol-is-of-no-use/#46fc55ef2ca2
    http://www.wsj.com/articles/paying-for-ethanol-at-the-pump-and-on-the-plate-1431645407?mod=djem_jiewr_EC_domainid&cb=logged0.23301221732981503

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