Sep 07 2007
What does the biofuel we put in our cars have to do with the meat we eat with our noodles and rice? Economics has an answer to this question! This week in AP Economics we learned that market supply of a product is determined not only by the price of the product but also by several “non-price determinants of supply”. To help remember these we learned an acronym:
S- subsidies and taxes
O- other related goods prices
R- resource costs
E- expected future prices
S- size of the market (# of firms)
The article above talks about the relationship between the demand for ethanol, which is a corn-based biofuel being manufactured in record quantities all over the world, and the price of China’s staple protein source, pork.
Read the article, and discuss which determinants of supply are being affected, and describe the impact on the pork market (think of the supply and demand curves and equilibrium price).
- As the price of pork goes up, what do you think is happening in the market for substitutes in consumption, such as chicken?
- How will the rising pork prices affect demand for chicken?
- Assuming that pork and chicken are also substitutes in production, how will the changes in the pork market affect the supply of chicken?
- What can we expect to happen to the price of other related goods as pork prices continue to rise?
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