Article Analysis: "Ethanol a big factor, among several, driving up food prices"

By Mark Steil, Minnesota Public Radio, March 6, 2008

Please read the article and answer these questions. You can find the article in the solution.

Short answer questions

Question 1

Explain and illustrate, using demand and supply model, the effect of the factors that have led to the rise in the price of corn. Use a separate demand and supply model explaining the equilibrium price and quantity changes in the wheat market following the price rise of corn.

Question 2

Explain what is meant by a cross-price elasticity of demand. Use the information in the article to give an example of a cross-price elasticity involving petrol and ethanol and explain what sign you expect the cross-price elasticity of petrol and ethanol to carry.

Question 3

Comment on the policy of setting a price ceiling on the sale of staple food to ensure its affordability for the poor.

Question 4

Some people argue that the corn industry is most likely to be a perfectly competitive industry. Do you agree? Explain.

Essay question

Question 5

We now assume that the corn and beef farmers operate in a perfectly competitive market respectively, and that before the rise in corn price, both corn and beef farmers earned normal profit. Use information about corn prices from the article (plus any other sources) to address, assisted by appropriate diagrams, the following issues.

a. The impacts of an increase in demand for ethanol on the short-run and long-run profit of a typical corn farmer.

b. The impacts of an increase in demand for ethanol on the short-run and long-run cost and profit of a typical beef farmer.

c. Your solutions to the current food shortage problem.

Explain and illustrate, using demand and supply model, the effect of the factors that have led to the rise in the price of corn. Use a separate demand and supply model explaining the equilibrium price and quantity changes in the wheat market following the price rise of corn.

Additional Information-

The question from Economics is interpreting an article. The article is about food security and the economic plight of some of the developing nations in the world. The questions based on the article have been answered accordingly in the answer.

Word limits- 1500