During the middle of the 2000s, the price of gasoline soared and there was a movement to switch to fuels made from a mixture of gasoline and ethanol. Ethanol can be made from corn
The price of corn skyrocketed and then, after a couple of years, the price decreased. What might have led to these price changes in the corn market?
There are thousands upon thousands of corn farmers in the United States. In the middle of the 2000s, high gasoline prices led to movement to incorporate ethanol into gasoline. Ethanol can be made from corn so the demand for corn increased. As a result of the increase in market demand for corn, the price of corn increased dramatically. Corn farmers were getting a high price and making large economic profits.
In the long run, unable to prevent the flow of information to prospective corn farmers, the word got out that economic profit was possible in this arena. Over time, more farmers switched to growing corn, so more corn farmers entered the market, which led to a large increase in the supply of corn. As supply increased, the price of corn dropped.
Thus the higher price was the short-run result of an increase in demand. The falling price reflected the adjustment to the long-run equilibrium, as new corn farmers entered the market.
You might also like to view...
The figure above shows the U.S. supply of labor curve. If there is a simultaneous increase in the nominal wage rate of 10 percent and a 10 percent increase in the price level, there will be a
A) rightward shift of the supply of labor curve. B) movement downward along the supply of labor curve from a point such as A to a point such as B. C) leftward shift of the supply of labor curve. D) movement upward along the supply of labor curve from a point such as C to a point such as B. E) None of the above answers is correct because there is no change in the supply of labor curve.
Which of the following is the best example of a perfectly competitive firm?
A) a Taco Bell restaurant B) United Parcel Service (UPS) C) a corn farmer in Illinois D) the Ford Motor Company
Incentive-based regulatory approaches:
a. are viewed favorably by most economists as a way to control pollution. b. provide less flexibility than the command-and-control approach. c. tend to hurt wealthier people more than poor people. d. require that the government specify certain types of pollution control technology that firms must adopt.
A sum of money received at a future date
a. is worth less than the same sum of money received today. b. is worth more than the same sum of money received today. c. has the same value as the same sum of money received today. d. is worth less than the same sum of money received yesterday.