Macroeconomics

If the demand for corn increases due to its use as an alternative energy source what will happen to the supply of corn’s substi

The demand for corn The increase in the demand for corn due to its use as an alternative source of energy would have effects on the supply of other substitutes, such as soybean. There would be a reduced supply of soybean as the increase in demand of a substitute good. corn would ultimately lead to a decrease in the demand of soybean and a reduction in the supply of soybean. Thus, the increase in the demand of corn would lead to a decrease in the supply of soybean. The increase in the demand of corn is due to the fact that people have found it to be a very useful source of alternative energy source and so, it does not follow the inverse relationship between price and the quantity demanded. One would have expected the price of corn to decrease due to the increase in the quantity demanded, but this is a different and special case. The increase in the demand for corn would also lead to an increase in the price of corn oil as suppliers would want to take advantage of the market scenario by maximizing their profits. Suppliers are aware that consumers have no choice than to make use of corn as an alternative source of energy and they would increase the price. Thus, the increase in the demand of corn and the price of corn oil have a linear relationship in this case. In a typical scenario, the price elasticity of demand for corn oil would have an effect on the quantity-demanded of corn oil (O’Sullivan amp. Perez, 2010). Initially, people would buy the commodity and the suppliers would make good use of the rapid increase in demand by increasing the price. This increase in price would have an initial multiplying effect on the total revenue made by the sellers of corn oil. This increase in price would make cause people to look for other alternatives and when they eventually find another alternative, they would have no choice than to reduce the rate at which they demand for corn and choose the close substitutes (Jones, 2008). Thus, there would be a gradual reduction in the total revenue of corn oil and a reduction in the quantity-demanded for the commodity and this is the effect of price elasticity of corn oil on the quantity demanded and the total revenue earned by sellers of corn oil. References Jones, CI (2008). A Supplement to Macroeconomics. W.W. Norton, Department of Economics, U.C, Berkeley O’Sullivan, A, Sheffrin, S amp. Perez, S 2010, Survey of economics: Principle and tool custom Edition, 4th ed, Prentice Hall, New Jersey.

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