Question

Corn is a valuable commodity in our global economy. Corn can be used as multiple inputs and as a final good. One of the inputs that corn is used for is the production of ethanol, which is used in the production of gasoline. As you know, agricultural markets are very important to the United States economy. But, what is going to occur in the market for corn if more is needed for the production of ethanol rather than the other functions of corn? In your answer, evaluate the role of opportunity cost and analyze each stakeholder involved in the production of corn. Respond to at least two of your fellow students' postings

Answer 1

Introduction

Each product has a relevant opportunity cost involved with both the production and the consumption of the same. For example a single piece of land can be used for creating an educational facility, a hospital, and an industry or to be used for the purpose of agriculture.

Generally speaking as best policy, it is advisable for countries to engage in that form of production, in which they can maximize their interests and the opportunity cost i.e. the cost of the next best alternative can be minimized respectively.

Case Specifics:-

Corn is used for both domestic purposes in cooking and in restaurants alike as an ingredient to be used for preparing food dishes. The secondary use of this product for ethanol exists but is relatively lower to domestic overall consumption.

A shift in the market from primary and secondary uses to it being focused only on ethanol would increase the prices of the product since large areas of land are required for the production of smaller quantity of ethanol. Researches have indicated that " 1 Acre of farm land of corn is required to process only 386 gallons of ethanol" this would shoot up the prices of the commodity meaning the market size would shrink and be limited to use of ethanol only.

Further, the market may find getting lesser returns even when prices are higher because the production of corn is dependent upon the availability of land which is a scarce resource.

The opportunity cost lost would be the actual sales of final corn produce which is used for food and the results could be such that a key ingredient of food would be difficult to purchase.

Thus in my opinion the sole use of corn as an ethanol producing input should be prevented.

Please feel free to ask your doubts in the comments section if any.