An article in the Wall Street Journal noted that demand for organic foods was growing rapidly in the United States. According to the article, "meat and egg companies like Pilgrim's Pride Corp., Perdue Farms Inc. and Cal-Maine Foods Inc. are ... expanding organic production, boosting demand for organic animal feed." But this development hadn't benefited U.S. farmers as much as they had hoped: "U.S. organic-farming groups say that an influx of foreign grain has been a chief factor in slashing prices for organic corn by about \(30 \%\) in \(2016 .\) " Illustrate the effects of these developments using two graphs: One graph should illustrate what happened in the market for organic corn and should include shifts in demand and supply indicated by the developments described. The other graph should show what happened to the situation of a representative U.S. farmer growing organic corn. Be sure to correctly label all the curves in your graphs

Step by step solution

01

Market for Organic Corn

Start by drawing a supply and demand graph for the market for organic corn. Label your curve as \(S_1\) for initial supply and \(D_1\) for initial demand. The intersection point of the supply and demand curves shows the equilibrium price (\(P_1\)) and quantity (\(Q_1\)).

02

Shift in Demand

Now, illustrate the increased demand for organic foods, which in turn increases demand for animal feed. This increase in demand causes the demand curve to shift to the right from \(D_1\) to \(D_2\).

03

Shift in Supply

Next, depict the influx of foreign grain, which increases the supply of corn. This increase causes the supply curve to shift to the right from \(S_1\) to \(S_2\).

04

New Market Equilibrium

The intersection of the new supply and demand curves \(S_2\) and \(D_2\) gives the new market equilibrium (\(Q_2\), \(P_2\)). Due to increased supply, the price decreases by about 30 %, as mentioned in the article.

05

Representative U.S. Farmer

Now, prepare a graph for the situation of a representative U.S. Farmer. On the y-axis, put 'income' and on the x-axis, 'quantity of organic corn sold'. Draw a downward sloped line representing farmers' income, due to lower price, despite increased demand.

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