Comparative statics: impact of corn price increase (Context Rich Problem)

Author: Amy McCormick Diduch, Mary Baldwin College
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This material is replicated on a number of sites as part of the SERC Pedagogic Service Project

Summary

This problem provides a quick test of student understanding of comparative statics applied to a realistic scenario. Students analyze the impact of rising corn prices on land values and grocery store prices.

Learning Goals

Students apply comparative statics analysis in the context of a realistic problem.

Context for Use

This problem is appropriate for a Principles of Microeconomics class. It may be used as a quick test of understanding in class (approximately 5 minutes to complete) or as part of a homework assignment.

Description and Teaching Materials

Corn has many uses: it is eaten fresh or used as a processed component of many foods; it is fed to animals; it is a widely used sweetener (corn syrup); and it is converted into ethanol and used as fuel. From 2002 to 2012, the weighted average price of corn increased over 200% (to $6.20 per bushel). You are discussing the impact of high corn prices on a local radio program. The show host asks your opinion about the impact of high corn prices on (1) land prices in corn-growing states, (2) grocery store prices of corn-fed beef and (3) grocery store prices of grass-fed beef. How do you answer?


The problem is also described in the attached file.
Comparative statics in response to corn price increase (Microsoft Word 2007 (.docx) 13kB Mar8 12)



Teaching Notes and Tips

Students who have worked on other comparative statics problems should quickly be able to identify whether the demand or supply curve is affected, which direction it shifts, and what happens to price and quantity.

Assessment

Student explanations should include references to supply or demand shifts and the resulting price and quantity changes whether or not they are directed to sketch the curves. Instructors can observe whether students are able to provide coherent explanations of these shifts.

The purpose of the assessment will determine whether or not you need a rubric. If the problem will be graded, it may be helpful to give the students a rubric such as:

  • Grade=A: All economic reasoning in the answer is correct. All relevant graphs are included. All relevant economic terms are included. May have 1-2 minor mistakes, such as a missing label on a graph.
  • Grade=B: Economic reasoning in the answer is correct, but some relevant economic terms are missing or graphs contain minor mistakes.
  • Grade=C: Contains significant errors in the economic reasoning. Many relevant economic terms are missing or used incorrectly. Graphs contain some significant errors.
  • Grade=D: Very little of the economic reasoning is correct and relevant to the problem. Nearly all relevant economic terms are missing or used incorrectly. Graphs are missing or contain several significant errors.
  • Grade=F: None of the economic content is relevant to the question.

References and Resources