Wheat+pushes+world+food+prices+up-+Brenna

Wheat pushes world food prices up Source: [] Date of article: 9/1/10 Date of extract: 2/18/11

Wheat is an agricultural product, which most of the time, is affected by weather conditions especially droughts. The determinant of supply of wheat is controlled by this factor. Supply is the amount of wheat farmers are willing to supply at various prices. The change in determinants of supply is caused by a shift from S0 to S1 (Fig. 1), where by quantity supplied decreases due to the "drought in Russia". In addition, the supply curve for the wheat is inelastic, which is to say that a change in price leads to a less than proportionate change in supply (Fig. 2). This indicates that a great drop in price from P0 to P1, will result in only a small decrease in quantity supplied from Q0 to Q1. Because of the shortage of wheat, the government has placed a quota on the amount of wheat that can be sold to other countries, which will then reduce the supply of wheat in the world food market. This change can be seen in Fig. 3, where by prices increase due to the decrease of quantity supplied. Also, as wheat is a source of food for livestock (meat), the prices of meat increases as it is being affected by the increasing prices of wheat. This similar shortage of wheat happened in the year 2008, however, with a different situation, where the increased in prices of wheat was caused by the demand for biofuel. Biofuel is a substitute for oil, and biofuel is being supplied through the supply of wheat. Wheat, being either the source for food or for biofuel, can be shown using a PPC diagram (Fig. 4). It shows the maximum number of combinations of goods that can be produced with the existing resources and the choice of decision to produce biofuel instead of food can be seen as Q2 falls to Q3 for food, and Q0 increases to Q1 as the production of biofuel is increased.There is an opportunity cost in producing more biofuel compared to food.

Determinants of supply: Non-price factors that influence the supply of a product Inelastic supply: A change in price leads to a less than proportionate change in supply Shortage: when quantity demanded is greater than quantity suppled Quota: A limited quantity of a particular product that under official controls can be produced, exported, or imported Substitute: One of two goods that replace each other in consumption such that an increase in the price of one good leads to an increase in demand and a rightward shift in the demand curve for the other good PPC: Production possibilities curve is a frontier whereby it is the maximum production possible given existing (fixed) resources and technology Opportunity cost: The next best choice foregone



Creating more GM (genetically modified) wheat will help increase the supply for food and biofuel. However, as some people are against GM food, they could use it mainly for biofuel. In addition, technology could help improve conditions for the crops so that they will not be affect by bad weather conditions. The use of biofuel could also be reduced by promoting a more environment-friendly way of transportation.