Supply-demand+crunch+pinching+ethanol+industry+by+Siao+En+Tan

//**REMEMBER: DO NOT SUMMARIZE THE ARTICLE!!!**//

=TITLE OF EXTRACT:= Supply-demand crunch pinching ethanol industry

=SOURCE:= http://www.cbsnews.com/8301-505245_162-57376796/supply-demand-crunch-pinching-ethanol-industry/

=DATE EXTRACT WAS WRITTEN:= February 13, 2012

=DATE CURRENT EVENT WAS WRITTEN:= March 6, 2012

=EXPLANATION OF THE ECONOMIC THEORY RELATED TO THE ARTICLE:= The market for fuel, has been experiencing a falling demand and affecting the market of ethanol and corn too. The falling demand of fuel has affected the market of ethanol because fuel companies mix ethanol in gasoline. The demand of corn has also been reduced because corn affects the production of ethanol. The market for fuel is like a chain reaction affecting other markets. Due to the decrease in demand for fuel,Midwest Renewable Energy ethanol plant near Sutherland has decided to stopped ethanol production for 2 to 3 months. This because ethanol market is in a monopolistic competition. Midwest Renewable Energy's decision to stop production of ethanol for a few months will allow the market for ethanol to slowly break-even by reducing the supply. The industry of ethanol will slowly break even because a reduce in the supply of ethanol will decrease the average total cost for ethanol will decrease in price, evening out and at last break even. By decreasing the number of firms in the ethanol industry, it will change the total production in the PPC because the actual production amount is less than before since firms are leaving the industry.

=VOCABULARY TERMS AND DEFINITIONS:=
 * PPC (production possibility curve): shows the potential output of an economy when it is given a certain time period and all of the resources in the economy are used fully and efficiently in a condition where the state of technology is fixed.
 * Determinants of demand: non-priced factors that influence demand for a product.
 * Monopolistic Competition: a market where a many small firms dominate producing similar products without any barriers to leave or enter the industry.
 * Break-even: occurs when P=ATC where the firm is covering all of the costs and making a normal economic profit.
 * Average total cost: total cost per unit of output.

=DIAGRAMS:=

=EVALUATION:= The demand for fuel has been decreasing probably because it is the winter travel season right now. Firms hope that after these few months, the demand for fuel will increase again allowing ethanol companies to go back on the normal track. The determinant of demand in this situation would be the holiday season that has affected the demand curve in the fuel industry. Due to the demand of fuel decreasing, it has also caused the demand of ethanol to decrease too. There is a risk that if too many ethanol firms start to pull out from the industry, then there will be a huge decrease in the supply of ethanol causing fuel prices to go up because the amount of ethanol will be more "scarce" when compared to before.