Question

Consider the market for corn. Say whether each of the following events will cause a shift in the supply curve or a movement along the curve. If it will cause a shift, specify the direction. [LO 3.5\(]\) a. A drought hits corn-growing regions. b. The government announces a new subsidy for biofuels made from corn. c. A global recession reduces the incomes of consumers in poor countries, who rely on corn as a staple food. d. A new hybrid variety of corn seed causes a 15 percent increase in the yield of corn per acre. e. An advertising campaign by the beef producers' association highlights the health benefits of corn-fed beef.

Short answer

a: Leftward shift; b: Rightward shift; c: No shift; d: Rightward shift; e: No direct shift.

Step-by-step solution

Understanding Context

To solve this exercise, it is important to understand the definitions: A 'shift' in the supply curve indicates the whole curve moves left or right due to external factors, whereas 'movement along the curve' refers to changes in quantity supplied due to price changes.

Event Analysis 1 (Drought)

A drought hitting the corn-growing regions would likely decrease the corn supply, causing a leftward shift in the supply curve because there is less corn available at each price level.

Event Analysis 2 (Government Subsidy)

The introduction of a new government subsidy for biofuels made from corn would increase the profitability of supplying corn, resulting in a rightward shift in the supply curve. This is because suppliers have an incentive to produce more corn due to increased earnings per unit.

Event Analysis 3 (Global Recession)

A global recession reducing consumer incomes doesn't directly affect the supply curve. Instead, it could potentially affect the demand curve for corn because consumers in poor countries might purchase less.

Event Analysis 4 (Hybrid Variety of Corn Seed)

A new hybrid variety of corn seed that increases the yield of corn by 15% per acre increases the quantity of corn supplied at each price level, thus shifting the supply curve to the right.

Event Analysis 5 (Advertising Campaign)

An advertising campaign by the beef producers' association highlighting the benefits of corn-fed beef does not directly affect the supply of corn. However, it could influence the demand for corn indirectly if more corn is needed to feed cattle due to increased demand for beef.

Key concepts

Supply and Demand

Supply and demand are fundamental concepts in economics. They determine prices and quantities in various markets, including agricultural ones like corn.

**Supply** refers to how much of a product producers are willing and able to sell at various price points. A **supply curve** is a graph showing this relationship, typically with price on the vertical axis and quantity on the horizontal axis. When external factors, like weather or technology changes, occur, the entire supply curve can shift. This shift usually indicates a change in production capacity or costs.

In contrast, **demand** refers to how much of a product consumers are willing and able to buy at different prices. It's influenced by factors such as consumer income, tastes, and the prices of related goods.

**Key Points** - A shift in the supply curve means a change in the amount supplied at every price. - Movements along the curve suggest changes due to price fluctuations, not external factors. - Demand changes can affect supply indirectly, such as increased demand for corn to produce ethanol might drive more corn production.

Corn Market Analysis

In analyzing the corn market, we look at various events and their impacts. The corn market is a vital part of the agricultural sector and can be affected by many factors, including weather and global economic conditions.

Events like a **drought** in corn-growing regions usually lead to a decrease in supply. This results in a leftward shift in the supply curve, indicating less corn is available at each price level. Because there is less corn, its scarcity makes it more expensive, highlighting how the supply and demand mechanism works.

Conversely, technological advancements, like a new variety of corn seed, can increase yield and shift the supply curve to the right. This means more corn is available at every price level, potentially lowering its price.

An important aspect to consider in corn market analysis is the influence of global economic trends. For example, a **global recession** decreases consumer buying power, especially in poor countries that rely heavily on corn as a staple food. This could dampen demand but doesn't shift the supply curve directly.

Understanding these dynamics helps explain price fluctuations and availability in the corn market.

Economic Subsidies

Economic subsidies are financial assistance provided by the government to businesses or economic sectors. They're used to encourage production, reduce costs, or stimulate economic activity. In the corn market, subsidies can change how much corn is produced and reshape the supply curve.

A common form of subsidy is for **biofuels**, where the government might pay corn producers extra for producing corn used in energy, like ethanol. This incentivizes them to increase production, resulting in a rightward shift in the supply curve.

**Benefits of Subsidies** - Encourage more production to meet national or international demands. - Help stabilize prices by smoothing out market fluctuations. - Facilitate access to emerging markets, such as biofuel production. Subsidies play a crucial role in adjusting the market dynamics and ensuring that sectors like agriculture remain competitive and economically viable in the global context.

Agricultural Productivity

Agricultural productivity refers to the amount of agricultural output produced per unit of input. It's a measure of efficiency and innovation in farming techniques. Improving productivity is crucial in sectors like corn production, where maximizing yield while minimizing costs can determine success.

Introducing a new hybrid variety of corn seed that boosts yield by 15% demonstrates a productivity increase. This innovation allows farmers to produce more corn on the same amount of land, shifting the supply curve to the right due to higher available quantities at each price level.

**Factors Contributing to Productivity Improvement:** - Technological advancements, such as improved seeds or farming equipment. - Better farming practices, including crop rotation or soil enhancement. - Investment in research and development to find more efficient processes.

Higher productivity leads not only to increased supply but also often to lower prices and more stable markets. It's a key driver in meeting the rising global food demands and ensuring economic stability in agriculture-related sectors.