In an article entitled, Corn Prices Surge on Export Demand, Crop Data, The Wall Street Journal identified several exogenous shocks


In an article entitled, "Corn Prices Surge on Export Demand, Crop Data," The Wall Street Journal identified several exogenous shocks that pushed U.S. corn prices sharply higher. Suppose the U.S. market for corn is competitive, with an upward-sloping supply curve and a downward-sloping demand curve. For each of the following scenarios, illustrate graphically how the exogenous event described will contribute to a higher price of corn in the U.S. market.
a) The U.S. Department of Agriculture announces that exports of corn to Taiwan and Japan were "surprisingly bullish," around 30 percent higher than had been expected.
b) Some analysts project that the size of the U.S. corn crop will hit a six-year low because of dry weather.
c) The strengthening of El Niño, the meteorological trend that brings warmer weather to the western coast of South America, reduces corn production outside the United States, thereby increasing foreign countries' dependence on the U.S. corn crop.

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ISBN: 978-0073375854

2nd edition

Authors: Douglas Bernheim, Michael Whinston

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Question Posted: March 17, 2016 04:44:53