Question

Escalating worldwide demand for corn has led to a sharp increase in the market price of corn, and corn prices are likely to remain high. Corn is extensive used as feed for livestock, and because profit margins are tight in the livestock business, many farmers are expected to leave the business. With fewer suppliers, meat prices will surely rise. Nonetheless, observers expect an immediate short-term decrease in meat prices.
Which of the following, if true, most helps to justify the observers’ expectation?
(A) The increase in corn prices is due more to a decline in the supply of corn than to a growth in demand for it.
(B) Generally, farmers who are squeezed out of the livestock business send their livestock to market much earlier than they otherwise would.
(C) Some people who ate meat regularly in the past are converting to diets that include little or no meat.
(D) As meat prices rise, the number of livestock producers is likely to rise again.
(E) Livestock producers who stay in the business will start using feed other than corn more extensively than they did in the past.

Answer 1

Answer:

If consumers who ate meat regularly in the past shifts to other substitute diets,then lower demand for meat could pull the meat price at least in the short term.Hence,the correct option could be (C) in this case.

Explanation:

Initially based on the basic demand and supply theory in Microeconomics,the excessive demand for corn as a livestock feed would increase the global corn price which along with less meat suppliers would be sequentially reflected in higher meat prices.Now,the higher price of corn as a raw material for livestock maintenance would raise the final price of meat in the market but to lower the prices at the same time,some demand side adjustment/s need/s to be made to restore the meat price to its previous point or position.Therefore,if the consumers switch to substitute diets for meat,the demand for meat decreases in the near future or considerably short period and the expected hike in meat price can be prevented or it can possibly decrease.Therefore,based on the demand and supply model,in this case,demand side adjustments in the market can expectedly contain the meat prices and pull it down in the short run.