Economics Week 2

[1] If the demand for corn increases due to its use as an alternative energy source, what will happen to the supply of corn's substitute such as soybean? Assume that, besides being substitutes for one another, corn and soybeans require the same raw material, such as the same farm land. Think about whether farmers will use their soybean farms to produce more or less corn. Explain, in economic terms [e.g. supply determinants], why this is so.

If the supply of corn increases faster than the demand for corn then the price of corn will go down obviously to be able to sell it. But if the demand for corn goes up then the price will go up as well, since it will be such in high demand. So if the demand and the pricing goes up for corn, then the production of soybean will decrease in supply. With this being said I believe that the farmers will have to use most of their soybean farms to be able to produce more corn. In which eventually soybean farm lands will go out of production after a while of producing so much corn. However, in supply determinants it means that if quantity changes a lot, we can say that demand is elastic and it stretches. But if quantity changes only a little, the demand would then be inelastic and quantity demanded would them be divided by the percentage change in price.

According to this article, American farmers harvested a record corn crop in 2003 that was insufficient to fill market requirements. The result was a sharp drawdown of U.S. and foreign feed grain carryover stocks. For the year ahead, official projections in June indicated U.S. farmers are likely to harvest an exceptionally large corn crop (815 million bushels above 2003) that will be only a little larger than market requirements. The 2004 crop projections reflect the earliest planting season ever recorded. With good weather through harvest, the early plantings are expected to contribute to record yields. Based on a decline in total planted cropland acreage in the last several years,...