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A Corn Price Surprise

Jul 7, 2011 • Businesses, Demand, Supply, and Markets, Financial Markets, Government, International Trade and Finance, Thinking Economically • 243 Views    No Comments

Interesting how real life can imitate economics. You know how corn prices have been soaring? Well, farmers responded just like they read an econ textbook. They increased supply. One tradeoff?  A smaller soybean crop.

Here are the headlines. You can see the perspective from Iowa in the Des Moines Register.

Washington Post: “Farmers plant second-largest corn crop in nearly 7 decades, could ease food prices this year

Des Moines Register: “Corn Plunges on Shocking USDA Report

WSJ: “A Corn Crop Bonanza

The Economic Lesson

On a demand and supply graph, demand slopes downward and supply slopes upward while price is our y-axis and quantity, the x-axis. Because farmers expected higher prices for corn, they switched from soybeans and wheat. As a result, the corn crop is bigger while the soybean and wheat harvests will diminish. On our graph, price falls because the corn supply curve shifts to the right.

An Economic Question: How would you draw the demand and supply graph for soybeans?

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