Question

Food versus fuel – a classic application of opportunity costWorld food prices have been rising since 2007. The rises have been particularly strong for vegetable oil, wheat and corn. This has resulted in civil unrest and riots in many poor countries. In response, for example in India, exports of grain products have been banned in order to maintain supplies in the home market. China has also taken steps to quell the rise in the price of cooking oil.One factor that has been driving up world food prices has been the increased demand for biofuels which are produced from agricultural crops traditionally used for food and animal feed. The most important biofuel is ethanol which is produced from corn and sugar cane. These crops are very important sources of biofuel production in the USA, Brazil and India.As global oil prices increase, there is a growing need for the increased agricultural production of corn, soya beans and sugar cane for conversion into biofuels. This may be good news for farmers producing these products and indeed, for users of biofuels. It is not good news for livestock farmers who experience increased feed prices or for consumers who experience rising grain and meat prices.Source: Adapted from S. Sexton et al, Agricultural and Resource Economics, Vol 12, No 1, 2008.

Use the information above to show how the concept of opportunity cost might be used to explain the trade-off s as they affect 1) governments

2)farmers

3) consumers.

Answer 1

TRADE OFF HAS BEEN DEFINED AS : A TECHNIQUE OF REDUCING ONE OR MORE DESIRABLE OUTCOMES IN

EXCHANGE OF INCREASING DESIRABLE OUTCOME . THUS IN ORDER TO

INCREASE TOTAL RETURN UNDER GIVEN CIRCUMSTANCES.

1. Thus the Concept of Opportunity Cost affects the Government to earn maximum revenue for the exports made by any country.The opportunity cost of exports made by gulf Countries since they are fuel rich is an classic example in this respect.

2.  The Concept of Opportunity Cost affects the farmers to decide the crop for they desire to produce. Based on demand and prices of the final product . Farmers thus generally take care of geographical and economic means in order to get the benefit of TRADE OFF.

3. The Concept of Opportunity Cost also affects the Consumer as the cost of product which is available in abundance will be quite less in comparison to the product available in scaricity. Thus customers generally buy and enjoy at lower cost when the product is available in large quantity and further can trade in other markets for Trade off.