AEM 250 Lec 6 Market Equilibirum Continued 09-08-10 sv

AEM 250 Lec 6 Market Equilibirum Continued 09-08-10 sv -...

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Voluntary Exchange , Prices and “I Pencil” (Friedman and Friedman)
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Rising Grain and Food Prices in 2007: ossible Explanations? Possible Explanations? 1. Rising food demand. 2. Scarcity caused by crop failure. 3. Rise in petroleum prices. 4. Ethanol. Dec. 6 2007) (Economist, D Wheat Maize Rice 2003/04 161 115 201 2004/05 154 97 244 2005/06 175 104 291 2006/07 212 150 311 2007/08 361 200 335 5. Others? (see Per Pinstrup-Andersen’s power point slides at: http://ciifad.cornell.edu/activities/seminars/ Wheat, Maize, and Rice Prices Annual Averages 2003/04 - 2007/08 ($/Ton) Note: Divide by 40 to get approximate price in $/bushel. Source: FAO – Pinstrup-Andersen – CIFAD Seminar 9/10/08 agroecsem/sem08/semF08.cfm )
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Explanation #1: Worldwide Food Demand Increase (Economist, Dec. 6, 2007) Grain consumption: “The use of grains for bread, tortillas and chapattis is linked to the growth of the world’s population.” Meat consumption: “Higher incomes in India and China have made undreds of illions of people ch enough to afford meat and other hundreds of millions of people rich enough to afford meat and other foods. In 1985 the average Chinese consumer ate 20kg of meat a year; now he eats more than 50kg.” “Since the late 1980s an inexorable annual increase of 1-2% in the demand for feedgrains has ratcheted up the overall demand for ereals and pushed up prices. Because this change has been slow cereals and pushed up prices. Because this change has been slow and incremental, it cannot explain the dramatic price movements of the last year.”
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Explanation #2/#3: Supply Factors #2 Input prices -“ igher fuel costs drive are driving up the expense of growing Higher fuel costs drive are driving up the expense of growing and transporting food”
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AEM 250 Lec 6 Market Equilibirum Continued 09-08-10 sv -...

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