Price_Elasticity_of_Demand

Price Elasticity of Demand When services and goods are demanded the supply for them increases. Let’s say that the demand for corn has increased due to its use as an alternative energy source. So more people are now requesting corn more than usual for its unique ability to produce energy. So the producers of corn will now have to meet the demands for the product by producing more. When this happens the production of corn’s substitute, soybean, will start to diminish. The production of soybean starts to diminish because farmers will use their land to make more corn to gain a better profit, rather than using soybean and only making a quarter of the profit. When corn is demanded the price will increase, the suppliers of corn will want to make some type of profit off of this demand so they will produce more corn. As explained within the law of supply; as the price of a good increase, suppliers will attempt to maximize profits by increasing the quantity of the product sold (“Law of Supply”). If suppliers are producing corn for the production of energy that can only indicate the production of other corn products, such as corn oil, will decrease. When the production of other corn products decreases the price for these products will increase. Take for instance if the demand for corn oil stays the same; but there was a major breakthrough in the production of corn for energy. So now suppliers are going to stop producing corn for corn oil and start the production of corn for energy. Because the demand for the corn oil stays the same, but the supply for it has stopped, that means that suppliers will then need to raise the price for corn products to keep them on the self longer. As talked about earlier with the law of supply, you can see the effect one product can make many. We are all aware that when prices begin to go up, we tend to stop looking at that product and start to look for a cheaper alternative. Corn oil has many alternatives. So naturally when suppliers raise the price of corn oil, consumers will just buy the next cheapest thing on the self. This will greatly affect the total revenue of corn oil because as it will decrease because consumers don’t want to spend more for a product that they can get for a cheaper price. So the sellers of corn oil will then see a decrease in sell s which means that they will not make a profit by raising the price of corn oil. Our economy is very unique in the way that we have many options to choose from. Demand makes prices rise, but there will always be another version of the product demanded to create an equal to the supply and demand trade. As mentioned earlier in this article, corn producers can raise the price of corn oil, but I am just going to go to the next best thing my money can buy. Bibliography NetMBA. (n.d.). Supply and Demand. Retrieved November 4, 2010, from NetMBA: http://www.netmba.com/econ/micro/supply-demand/ Slavin, S. L. (2009). Economics 9th Edition. New York: McGraw-Hill/Irwin. ULC, I. (2009, July 02). Economics Basics: Demand and Supply. Retrieved 10 27, 2010, from Investopedia: http://www.investopedia.com/university/economics/economics3.asp