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Demand and Price - Essay Example

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Economic Name Professor Institution Course Date Impacts of increased demand for biofuels on the demand for and price of crops such as corn Bio fuels are the main, alternative energy source that is suitable for use in vehicles without necessitating technological changes…
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Demand and Price
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Demand and Price

Download file to see previous pages... The other consumers of corn have to resort to other alternatives that are relatively cheaper in the market. Biofuels are a product from corn and oilseeds; thus, the producers of biofuels have to substitute the input of the two raw materials for the optimization of profits. Thus, the producer faces the choices to incur a higher cost of production, reduce the output or increase the consumption of oilseed for production. The crop farmer benefits from higher returns and responds by increasing the production of corn (Dalton, 2009). The vertical axis shows the input of oilseed while the horizontal shows the corn input. The aim of the producing company is to maximize profit (Dalton, 2009). The point R we have the isocost line meeting with the isoquant. This combination of corn and oilseed will yield the company maximum output minimizing on cost which is the objective of the company. An increase in the demand of biofuels will mean that the company has to move to a higher output level. This will need an increase in the inputs, which are corn and oil seed. How developments in agricultural and conversion technology might influence the impacts identified in above The developments in agriculture aimed at production of more corn will lead to increase the supply of corn in the market. The increase in supply is likely to cause a decrease in the price of corn. However, with the advancing technologies of conversion coming into operation a wider range of materials will be usable for production of bio fuels (Bhamra et al., 2010). This will further, ease the burden of bio fuels production on corn. The price of corn would establish a new equilibrium with the demand that now will be. DI indicates the demand of corn. Pe and Qe show the equilibrium price and quantity. The production of biofuel using corn as a raw material causes an increase in the demand of corn, thus the demand curve shift shown by the arrows (Dalton, 2009). Consider the result below. The demand for more biofuels stimulates a higher demand for corn (Gupta & Ayhan, 2010). The demand curve shifts to D2 and a new equilibrium at the point J. The effects of increased competition between participants in the market on the impacts identified above. The competition will result to a higher demand of corn. The crop farmers will expand production in order to feed the new market. This will mean changes in the farming practices and patterns. These changes necessitate farmers to use irrigation. The use of irrigation will cause a strain on water resources available. There will be a need to expand to potion of land used in corn cultivation yet limited space provides a challenge. The crop farmers will start cultivating of marginal lands, which are highly erodible (Gupta & Ayhan, 2010). The farmers will intensify the use of chemical inputs to increase crop yield. This will negatively affect the soil. This is because the increased use of fertilizers will lead to contamination of runoff and nutrient leaching. However, the level of damage will depend on management practices employed by farmers. Increase the level of cultivation may lead to high levels of erosion. This will further, affect the quality of water in the region. These damages will be presenting the problems of environment sustainability (Gupta & Ayhan, 2010). Cultivation of marginal lands and expansion of land under crop production is a threat to wildlife resources. The cultivation leads to destruction and clearing of vegetation, ...Download file to see next pagesRead More
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