Elasticity Essay Example | Topics and Well Written Essays - 500 words

Elasticity - Essay Example Given an increasing price for corn, farmers will shift to producing corn rather than corn substitutes like soybeans. In addressing the impact of an increase in the demand for corn resulting from using corn as an alternative energy source, it is useful to understand the determinants of demand. According to Mankiw (2007), the determinants of demand or the variables affecting the quantity of the good demanded are price, income, prices of related goods, tastes, expectations, and number of buyers. While movement in prices represents a movement along the demand curve, the demand curve shifts leftward or rightward based on changes in income, prices of related goods, tastes, expectations, and number of buyers. The determinants of demand or the variables affecting the quantity demanded of a good are identified in Table 1. Table 1. Determinants of Demand Source: Mankiw, 2007, p. 69 When the demand for corn increases when corn is utilized as an alternative energy source, we can represent the si tuation as a rightward shift in the demand curve. This is shown in Figure 2 where the right ward shift in demand is represented in the movement from D2 to D3. Figure 2. Shifts in Demand Curve Price of Corn Quantity of Corn Source: Mankiw, 2007, p.