With the Help of a Demand and Supply Diagram and Using the Information in Extract B, Explain Why the Prices of Grains Such as Corn and Wheat Were Rising in 2007.

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With the help of a demand and supply diagram and using the information in Extract B, Explain why the prices of grains such as corn and wheat were rising in 2007. Demand in this instance refers to the number of people who are able and willing to buy a product at a given price. Supply refers to the number of suppliers who are willing to sell that product at a given price. One reason for a rise in the prices of grain and wheat is the rising of people’s incomes on a huge scale i.e. China, and as people tend to get more disposable income, in terms of food they will tend to consume more meat. This means a lot more wheat and grain is demanded in order to feed these animals, this causes the demand curve to shift to the right causing prices to rise. As indicated in the diagram on the right where P1 moves up to P2 as a result of a shift in demand. Another reason for an increase in the prices of grain and wheat is a rising demand for bio-fuels of which grain and corn are vital components. This combined with the current fuel climate and oil prices result in a lot of demand for bio-fuels which is why 20% of American grown corn goes on bio-fuels. Like a rise in income this also shifts the demand curve to the right and results in demand pull inflation. This can be illustrated by the same diagram and the same shift from P1 to P2. In conclusion the prices of grains such as corn and wheat have risen as a result of multiple demand side factors. In 2007 was when the rise in disposable incomes in China and the rise in demand for bio-fuels saw significant rises which in combination caused a large price rise as a result of demand pull inflation. George

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