Discussion: Economics (Coursework Sample)

Instructions:

Read the following scenario. In 2010, 40% of all U.S. corn production was used for producing ethanol, while 60% was used for consumption in or as food products. In 2011, a prolonged drought reduced the overall production of corn by 30%, from 10 million bushels to 7 million bushels. Currently, 2.8 gallons of ethanol can be produced from one bushel of corn. In reaction to both the losses in overall production and increasing demand, the U.S. Department of agriculture mandates that all corn producers now must use 50% of their crop for ethanol production. Step 2 Based on the information above, answer the following questions. Review and answer the following questions. Respond to the following questions and, if appropriate, include personal experience as part of your answers: What are some of the primary obstacles to efficiency of U.S. corn production? Before the mandate, what was the opportunity cost of ethanol in terms of bushels of corn? After? What was the opportunity cost in 2010? Was the market for corn and ethanol more efficient before or after the mandate? Why or why not? What components make for an efficient allocation? How do you think a government subsidy of $0.99 per gallon of ethanol would affect current production level on the PPF? What methods or actions, in light of the 30% decrease in corn production for 2011, do you think could be used to return the PPF to its former level in 2010 (10 million bushels/year) or greater?

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Content:

Discussion 4
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One of the most notable obstacles is drought, which has reduced the overall production of corn by 30% thus hindering the efficiency that was being experienced in the market. The opportunity cost of ethanol in terms of bushels of corn equals to the amount of corn that was used for food purposes. It follows that 6 million bushel represents the opportunity cost of ethanol in the year 2010. After the mandate that required 50% of corn for the production of corn, the opportunity cost in 2011 was 3.5 million bushels. This is because the overall production reduced from 10 million in 2010 to 7 million in 2011 thus providing a 30% decrease.
The market was efficient before the mandate where the demand and supply of corn for both food and ethanol purposes seemed to be in equilibrium. The farmers were able to satisfy the divergent needs of the users of these products unlike after the mandate where there were shortages in terms of corn being allocated to food. Components that meet efficient allocation are where the demand and supply for corn are catered for effectively. This is without tendencies of rationing that are brought about by supply deficits that have been caused by the drought and substantial increase in the demand for ethanol production.
A government subsidy of $0.99 per gallon will decrease the cost of production thus leading to increased demand for corn. Producers of ethanol shall be pressurized to increase their production capacities since the consumers will be encouraged to purchase additional gallons. It shall affect the product possibility frontier in the sense that there shall be an increased allocation of corn to the production of ethanol while there shall be a reduction of the amount set aside for food purposes.
The action that ca...

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Discussion: Economics (Coursework Sample)

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