Economics of Volatile Corn Prices

Write 3 pages with APA style on Economics of Volatile Corn Prices. The primary reason behind rise in the prices of corn was due to its global demand against its restricted supply. The excess demand could not be met with the restricted supply, which resulted in the rise in prices of corn all over the world. Mexico is the second largest importer of corn in the world. The rise in the corn prices all over the world has affected Mexico to a great extent. Decline in demand of corn due to rise in its price can be depicted by using the following graph:- (Source: Fep, 2004) In this graph it is shown that when the price of corn in Mexico was $3 per bushel, its demand was 2 billion bushels per year and the supply was 1.1 billion bushels per year. Thus there was an excess in demand which could not be met by the supply. As a result of the price rise to $5 per bushel, the demand decreased to 1.1 billion bushels per year and consequently excess supply is generated. The market should move towards equilibrium at a price of $4 per bushel where the demand equalises the supply. Another reason for the rise in corn prices in Mexico was the production of corn based ethanol in the United States and the European Union. The producers of corn had to suffer due to this price rise. Another reason for the high corn prices was the draught in the United States.

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