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lectur5-page25 - Typically, beef cattle producers will bid...

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25 25 Limited resources have alternative uses (3) Use corn to feed people, feed hogs to produce pork, feed beef cattle to produce beef, feed dairy cattle to produce milk. What directs the use of resources to produce certain commodities? Does price allocate or steer resources in the direction that earns them the greatest return? I think so. If the price of beef cattle increases relative to the other uses of corn, then beef cattle producers will want to use more corn as they expand their herds. More corn will be allocated to beef cattle since the return to corn in beef cattle production will be higher than in alternative uses.
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Unformatted text preview: Typically, beef cattle producers will bid the price of corn up until the corn market reaches a new equilibrium at a higher price. This higher price of corn may cause hog producers to cut back on hog production because of the higher price of corn, thus freeing corn supplies to beef cattle producers. The power of prices to efficiently allocate resources and commodities never ceases to amaze me. And the fact that prices are determined by individuals interacting with each other in a market is truly remarkable....
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