EC103-Topic #3: Food (Commodity) and Oil Prices

Inflation in the U.S. has now become the number one concern for Americans according to a recent CNN poll. The most recent BLS report on the CPI shows however that inflation in the U.S. is actually rather slow at 4.0% (for all urban consumers) between February 2007 and 2008. Excluding food and energy prices, inflation was only 2.3% over the past year (also see NYTimes article related to the PPI (what is the difference?)).

It is believed that the focus on ethanol production has helped to fuel inflation. However, others disagree with this analysis. While it is difficult to entangle these effects, it should be apparent that government policy definitely plays a big role in inflation.

Jeffrey Frankel has written that many believe the interest rate adjustments by the Fed have fueled increases in energy prices during the past year. However, others believe that U.S. interest rates have little to do with foreign energy investments and production. Since the rate cut on Tuesday 3/18, oil prices have fallen dramatically, counter to Frankel’s point, likely to be associated with a global economic slowdown, meaning people around the world need less oil and food.

Questions you might try to answer:

  • In the CNN article, there is a diagram on the right hand side that says whether or not items today are a good deal or a bad deal based upon their changing prices. What is wrong with what they are doing here, if there is anything wrong?
  • Which side do you take on the effect of interest rates on commodity prices, oil prices in particular?
  • Do you believe that ethanol production is driving inflation higher? Do you agree with the government’s stance on supporting ethanol production to solve our energy problems?

I would like your statements to be as subjective as possible, or in jargon terms, positive and not normative in nature. Also, remember, I want you to keep your descriptions short, basic, and related to classroom content. Read other students comments before posting, and please leave your name with your posting.

19 thoughts on “EC103-Topic #3: Food (Commodity) and Oil Prices”

  1. There are several problems with the diagram in the CNN article. It extrapolates information from the data they present that can’t be accurately inferred. There are many other variables that can dictate these changes of price. Mainly, supply and demand will affect these prices the most. With technological advances many of these products such as the Washington Post are easier to produce. Therefore, they don’t necessarily have to raise their prices so much to stay in business. When the 1972 price is adjusted it appears to be a good deal because it is higher than the 2007 price. However, if for whatever reason paper became very scarce the price of this newspaper would not be the same and may very well be classified as a “bad deal.” Essentially, the problem is that the way they are measuring the idea of a good or bad deal is too arbitrary.The idea that ethanol is driving inflation upwards does hold some weight. Lots of resources are being thrown into ethanol production, which is having many affects in our production of food. Since a lot of our nations farmers have started to replace other crops with corn for the production of ethanol prices for things such as wheat based products have started to rise. The point can be argued that the production of ethanol is using up resources for other necessary products and has started to push the general level of prices for these products upwards. -Kevin Sergo

  2. I think the diagram In the CNN article seems to be a good idea for consumers, because the diagram provides the statistic to show whether or not items today are a good deal or not based upon their changing prices, and it seems to protect consumers from making a bad deal. I also believe the information that diagram shows can have psychological impact when a consumer purchases a product. Therefore, if certain products are classified as bad deals, then they might decrease the demands for those products, and cause price and quantity of those products to decrease. As a result, it might slow down the economy.Normally, high interest rates are reducing the demand for commodities, so the commodity prices are falling. On the other hand, when interest rates are falling, the commodity prices are rising, which allows companies to charge consumers with higher price. For example, oil, corn, wheat, and soybeans are commodities that have increased in demand, so theoretically, the quantities and prices of that product should increase. However, since oil is a limited resource, it is hard to increase its quantity.It might be true that we can make ethanol from corn, but in that case, corn will have lower quantity and higher price. Therefore, I believe the ethanol production might drive inflation even higher. According to the article “Why Ethanol Production Will Drive World Food Prices Even Higher in 2008,” it shows the commodity prices are increasing rapidly. For example, by late 2007, the price of a loaf of whole wheat bread was 12 percent higher than previous year, the price of a bottle of milk was 29 percent higher, and the price of eggs was 36 percent higher.1 The statistic apparently indicates the commodity prices are increasing. And, the reason for that is of so many fuel ethanol distilleries around the world. Nonetheless, I agree with the government’s stance on supporting ethanol production to solve our energy problems. We are living in the century now where the consumption of energy becomes essential. Cars and factories require energy to run and function. Before ethanol production, we were solely depending on oil. However, oil is a limited resource, and we can not rely on it forever. The discovery of ethanol is a big help to sustain of today’s lifestyle and economy. Therefore, supporting ethanol production might be a good move.1Lester R. Brown, “Why Ethanol Production Will Drive World Food Prices Even Higher in 2008,” January 24, 2008, March 22, 2008, http://www.earth-policy.org/Updates/2008/Update69.htm .-Feng Liu

  3. The sidebar accompanying CNN’s article is misleading. In assessing whether goods are a “good deal” or not, CNN’s criterion is whether the rise in the price of the good has kept up with or exceeded the rate of inflation. However, that criterion is flawed. The change in price of the good does not dictate whether or not it is a good deal for a consumer; rather, the indicator of a good deal is dependent on the buyer’s reservation price. If the price of a good is equal to or less than the buyer’s reservation price it is a good deal for that individual buyer—if not it is a bad one. The rise in prices of commodities is certainly linked to the increase in ethanol production. Basic principles of supply in demand show that because increasing quantities of corn are being used to produce ethanol, there is a decrease in the amount of corn being produced as a food source and thus the price of commodities is rising. However, articles like “Media Revelation: Ethanol is Causing Inflation” appear to pin the rise in the cost of commodities solely on the dedication of corn to the production of ethanol. In doing so these articles unjustly ignore a large number of other factors that are contributing to this trend, such as shifting of the supply and demand curves as noted in “Corn Ethanol not Culprit for Food Inflation.” The government’s push for increased production of ethanol is a positive measure, despite the resulting increase in prices of commodities. Ethanol lessens our dependence on oil, and thus potentially drives down energy prices. Also, the environmental benefits of producing ethanol are tremendous, improving our quality of life and overall economic wellbeing. Many critics of ethanol production, such as the writer of “Media Revelation: Ethanol is Causing Inflation,” neglect to take into consideration the fact that paying more for our commodities is a trade-off for the benefits inherent in ethanol production.-Evelyn Fanneron

  4. The CNN diagram states whether the dollar amount paid for an item in 2007 (versus in1972), after being adjusted for inflation, is a “good” or “bad” deal. A 6-pack of Coca-Cola is considered a “good” deal because “the price has risen less than inflation,” while a stamp is considered a “bad” deal because “the price has risen more than inflation.” The problem with this is that “good” and “bad” are too subjective of terms. For one buyer, a stamp may be a “good” deal today if his/her reservation price is higher than $0.40 ($0.40 is what the diagram says the 2007 price should be after inflation). Another problem with the diagram is that it does not take into account the “quality adjustment bias” (Frank and Bernanke). A Corvette sport coupe is considered a “bad” deal, but the price comparison is not adjusted for possible improvements in the quality of the car. Perhaps, in 1972, the car did not have airbags for all passengers as it may have now. Other changes such as fuel efficiency may have taken place to make the car more valuable as well. None of these changes are considered in the qualification of this “bad” deal. While it is evident that inflation is occurring in the US, Christine Stebbins says that it is wrong to blame corn ethanol as the sole “culprit for food inflation.” This may be true, however, she argues that the price of corn in the past 20 years has had a “minimal impact” on the food CPI. In the past, corn was not used as heavily as it is now for ethanol production, so it would not have had as great of an effect on the CPI or inflation of food as it is having presently. There is more than one reason for the inflation in food prices (Stebbins blames “non-farm costs”) and general inflation, but corn ethanol certainly has a greater impact than it ever has before.

  5. I am skeptical of the CNN diagram. Upon first glance, deeming Harvard tuition a “bad deal” solely because its current tuition exceeds its inflation-adjusted tuition for thirty-six years ago struck me as odd, since no information is provided regarding why tuition increased. Consider the possibility that Harvard degrees became more valuable to employers; additionally, suppose the number of people applying to colleges throughout the U.S. has increased since 1972. An increase in the country’s total college applicants would shift the demand curve right (increase), and an increase in employers’ value of Harvard degrees might increase the price applicants are willing to pay. Both of these factors would explain an increase in tuition. In this case, a Harvard degree may indeed be a “good deal” for an accepted applicant, especially depending on the value employers place on Harvard degrees. This is just one example of how the diagram disregards causal details that may otherwise change their “good-deal-bad-deal” judgments.After Cristine Stebbins’ articled pointed out additional factors that determine the price of a given food product- e.g. “labor, fuels, transportation, packaging, and other non-farm costs”- the argument that ethanol-inspired corn crops are solely responsible for half of the country’s inflation, claimed by Jim Cramer, seems less convincing. Cramer asserted that the other half of inflation is due to oil, but consider how many non-farm costs of corn are contingent on oil prices. While ethanol crops are certainly shifting the supply curve of other staple crops left (decrease) to some degree, thereby increasing food prices, pinning half of inflation to this factor seems unlikely to be correct.-Bradford K. Nesbitt

  6. In some ways the diagram the CNN article uses is a good thing. It simplifies the concept of inflation, and someone who is not very familiar with economics would be able understand this simple example of inflation. The diagram however does not note that salaries will climb with inflation. As we have discussed in class, many salaries are adjusted with inflation so even though goods cost more, consumers earn more money to pay for these goods. As the article titled “Ethanol Demand Threatens Food Prices” discusses, the new increased for demand ethanol, has caused the prices of any corn product to rise. Prices of meat and poultry products will also rise, because these animals must be fed with corn. As noted the falling interest rates, cause the rise in price of many commodities including oil. Jeff Frankel of Harvard notes that the rising prices will continue until they become so high that there is a widespread fear of depreciation. At this point the prices will come back down, as they appear to work in a cycle. To me ethanol production is a good step in finding an alternative energy source. I do not think that one source will be sufficient enough to be the only source of energy. As demonstrated by ethanol any new source of energy will have an effect on the surround industries, and will take time until it fits into the economy.-Taylor Vit

  7. In the CNN article, the diagram on the right hand side of the page is problematic because as some people have noted, it does not take into account the reservation price that people would have for each of the items listed. But to continue along these lines, the diagram doesn’t take into account the rate at which consumers’ incomes have grown. The diagram assumes that people’s income is growing at the same rate as the CPI and then judging what would be a good deal. To just look at prices limits one’s ability to look at what may or may not be a good price.The production price index (PPI) is less accurate in giving us prediction about inflation than the CPI. The lack of control over what is being counted in the PPI makes for an inaccurate picture of growth. The PPI is supposed to “take the economies temperature” and predict what inflation rates will look like when they are measured but it can create fear or a false sense of security if it is relied upon as a strong predictor.Although Christine Stebbins argues that corn is not the culprit for food price inflation, she gives a weak argument in saying that the “higher prices of corn are being absorbed at the margins” by farmers and food processors. She offers no foundation or evidence for this claim. In the process of making this claim, she admits that ethanol demands have boosted corn prices. Anytime there is a shift of the demand curve (demanding more corn for fuel and food) then there is a rise in price. What she does not address is how much corn is used in the food products that Americans consume. Here is an excerpt from the Washington Post review of The Omnivore’s Dilemma by Michael Pollen. “American cattle fatten on corn. Corn also feeds poultry, pigs and sheep, even farmed fish. But that’s just the beginning. In addition to dairy products from corn-fed cows and eggs from corn-fed chickens, cornstarch, corn oil and corn syrup make up key ingredients in prepared foods. High-fructose corn syrup sweetens everything from juice to toothpaste. Even the alcohol in beer is corn-based. Corn is in everything from frozen yogurt to ketchup, from mayonnaise and mustard to hot dogs and bologna, from salad dressings to vitamin pills. ‘Tell me what you eat,’ said the French gastronomist Anthelme Brillat-Savarin, ‘and I will tell you what you are.’ We’re corn.”If the consumption of corn in the American diet—directly and indirectly—is so prevalent, then a rise in corn prices will lead to a rise in food prices, overall.

  8. The government’s push for increased production of ethanol is a positive measure, despite the resulting increase in prices of commodities. Ethanol lessens our dependence on oil, and thus potentially drives down energy prices. Also, the environmental benefits of producing ethanol are tremendous, improving our quality of life and overall economic wellbeing.- Evelyn FanneronIn response to this comment, the production of ethanol in the United States is a poor decision. According to Paul Krugman, the energy used to produce ethanol is so great that the benefits (net savings) are only about .25 per gallon of ethanol per gallon of gas used in production. The production of ethanol uses primarily fossil fuels so the increase in carbon emissions created as a result may be mitigating the benefits of the use of ethanol to curb global warming. Lastly, estimates show that if the US were to use every bit of domestic corn available for the production of ethanol, only 12% of the gasoline we use would be replaced.Source: Krugman, Paul. “The Sum of All Ears.” New York Times, January 29, 2007.

  9. I think that the diagram proves to be true to a certain point. Sure, the 21 Club burger is cheaper than inflation so it is a good deal to buy. On the other hand, Items like the 2007 Corvette and Harvard tuition I think take different stances. As technology has grown, the car market has grown more competitive, along with how college acceptances have become more competitive in the last couple of years. With the new technology that is being put into cars, plus the fact that they have more to compete with, Its almost not the same car that came out back in ’72. The Harvard tuition is a bit skewed too. These days, employment is more valuable to employers and students are trying to get into America’s best colleges so they can be one of the few to win these few positions. Sure, college these days is very expensive, but your paying for the name and the recognition of the college among other things such as room and board, books, and other fees. This is more competitive than back in the 70’s because college was not as desirable as it is today, so therefore the rise in price shows that. Now it is true that inflation is happening in America and that many people are worried about the rising rate of it. This is causing food to be more expensive, for gas prices to skyrocket, and therefore making it much harder for people to survive. Now the question is, “Where to put the blame?” In an article called, “Rising Inflation Creates Unease in Middle East, by Robert Worth,” it tells us that the recent boom in the oil market, along with the rising global demand for commodities and the constraints of economies tied to the ever weakening American dollar is contributing to the extreme rise in inflation rates in the middle east. The article also talks about how it is not a coincidence that the inflation is coinciding with the new oil wealth, which has fed perceptions of corruption. In all, I believe there are many reasons why the economy as a whole in the states and across the world have sunk and have been doing poorly. There are many fingers to blame from the oil market to the food market. Ethanol might as well helped fuel inflation, but at the same time, if we are trying to live a greener lifestyle, then we have to learn with a way to continue living this lifestyle, while trying to keep food prices and other commodity prices down. David Martin

  10. I believe that the production of ethanol is responsible for the rise in inflation of food prices in the United States. Ethanol is a fuel derived from corn and if we begin to place the burden of both feeding and energizing our country on one product it will likely cause the cost of that product to rise. The amount of fuel that is consumed would have to be met by an enormous supply of ethanol fuel. This would place an unfair burden on farmers who already work so hard to supply our nation with a steady supply of corn and grain. The government should be wary of supporting an economic policy that would risk driving the price of grain to new heights. If food went through the same crisis as our current rise of oil and gasoline prices the economic upheaval could be disastorous. Also the conversion of corn into ethanol is a process that has not yet been perfected and still requires the input of an outside energy such as gasoline. Although more beneficial for the environment ethanol is not a sound option as a new resource for energy. It could drive up the cost of food and is costly to convert from corn to fuel form.

  11. The diagram on the right side of the article was informative for someone who is not familiar with a CPI index, but it the “Good” or “Bad” deal was a little misleading. I thought it was interesting to see how the actual price of something was compared to what it should be with inflation. It is difficult to judge whether these goods are good deals based on the amount of variables other than the prices compared to the inflation rate. For example they label gas a bad deal because its price is not priced correctly compared to the price adjusted by inflation. Gas is a natural resource that has increased in price not only to the fact of inflation, but that the demand is high and the supply is low. Also, the amount of turmoil in the Middle East has risen in the past decades.As for the prices of commodities spiking, it was interesting to read James Frankle’s point that with high interest rates, eventually the price of commodity goods will drop and level off. Lowering the interest rate will have an adverse effect in increasing the price of these commodities. Feng Liu brings up and interesting point when my fellow student says that the quantities and prices of these commodities will increase, but with the quantity of oil running low it cannot increase. The decreasing supply of oil also is going to create even more of a problem with the developing markets in China, India, and other countries.Ethanol is definitely playing a major role with the inflation surge. Because corn is in such high demand for the new alternative fuel craze, its prices are sky rocketing. We must not forget that not only is corn used for fuel, but it is still being used from everything to artificial sweeteners to food for live stock. With a price increase from 2 dollars a bushel to 4 dollars, and an increase of 11 percent in corn acreage, corn has become the new cash crop (Cox 1). Although ethanol is expensive to create, it is important that nations all over the world look to alternate fuel sources. With this technological advancement, a market boom can take place, but only if scientists can get it right.-Mike Jennings Cox, Jeff. “Corn: The Inflation Crop”, March 28, 2007, March 26, 2008.http://money.cnn.com/2007/03/27/news/economy/corn_prices/index.htm

  12. Agreeing with the government’s position on stimulating the production of ethanol, I believe that increasing ethanol production is a positive move to make oil prices lower. Science Daily writes, “Recent increases in oil prices in conjunction with subsidy policies have led to a dramatic expansion in corn ethanol production and high interest in further expansion over the next decade.” Furthermore, in this year’s State of the Union address, President Bush called for “the production of 35 billion gallons of ethanol by 2017, which would equal about 15 percent of the U.S. liquid transportation fuels” (www.sciencedaily.com). Of course, with the high demand for ethanol, the increase of corn related products will also rise, as will the price of meats and poultry because of the animals which consume corn. The Federal Reserve has been cutting interest rates to keep inflation down, and by keeping inflation low we have more buying power for oil. As for the future, corn growers will be able to sell their corn stalks and leaves as well as their grain for the production of ethanol. Making use out of what normally would be considered unusable, “What is now a waste product will become an economically viable commodity” says Mariam Sticklen, a Michigan State University scientist. Attitudes like Sticklen’s can promote higher ethanol production and thus, more success in that we become less dependent on oil. Fearing a recession, the Federal Reserve realizes how detrimental the weakened dollar would be for all if we were to look to oil as our only energy resource.-Christin Mulder

  13. It is articles like the one from CNN that increase the country’s fear of inflation and in some ways add to a potential economic slump. In the article “Inflation is Americans’ top economic concern,” the writer, Goldman, reinforces the fears of inflation by making statements such as “March’s inflation figures are expected to be ugly.” This article has the potential to impact the average American in a way that will decrease his spending due to his increased economic fears. This decrease in spending is the last thing our economy needs. The article succeeds in adding to the hesitation already felt towards our economic system in consumers’ minds and continuing to generate the general fear so prominent in our news media.However it is not the general tone of the article that bothers me the most. It is the “Price Points: Then and Now” next to the article that makes inflation seem much more disturbing than it is. First off, I do not think that a product can be marked as a good or bad deal because each product has a different value to each consumer who is willing to pay more for one object than another consumer. What might be considered a good deal for one consumer could be a bad deal for another. That aside however, there are still problems with the presentation of the data that make the prices appear worse than they are. First of all, the data does not mention the average rise in salary which, in 2006, was around $65,000 per household, and in 1975 was around $45,000 per household (both in 2006 dollars).1 Thus, the increase in prices is more reasonable and logical when measured against the increase in average income. Furthermore, the data was presented so that a product’s designation as a “good” or “bad” deal appeared to be based completely upon its increase or decrease in price relative to inflation. However, these products’ prices have risen and fallen not just with inflation but have been determined by their demand over the past 35 years. IF the price has increased, it is because the product is in high demand and thus, most probably to most consumers not considered a “bad deal”. It is the supply and demand of a product that determines its price and thus if a product is in high demand, it will be worth more to the consumer. One cannot deem the increase in price of a “21 Club Burger” as a “good” deal without considering its rise or fall in demand. Thus, it is the individual’s demand of a product and how much he is willing to pay for it that marks the product as a “good” or “bad” deal. 1. “Historical Income Tables- Households.” US Census Bureau. http://www.census.gov/hhes/www/income/histinc/h06ar.html-Brittany Keefe

  14. There are two major concerns with the diagram shown in the CNN article. The primary concern is that the information provided does not accurately indicate the causes of the discrepancies between prices, and only provides an entirely weak analysis, which could only consist of one of two responses to the price change. The secondary concern is the somewhat arbitrary inclusion of various items, as it is unfair to equate gas prices with the salary of a politician. The first issue being most pertinent, it is interesting how the article does not diverge from the issue of inflation with the exception of pointing out how much unemployment has risen in the past few months. The problem with the article, and thus the corresponding diagram, is that inflation is portrayed as a devouring beast that comes to drive up prices, instead of being a natural part of any economic cycle. Amid all the doom-saying, it is extremely important to note that the expectations of the masses, shown through the eponymous poll, do not in fact reflect the actual data when it comes to inflation. It is curious how rising prices on items like gas can frighten so many people into thinking the apocalypse is near and that its herald is called inflation. The diagram seems to reflect that sentiment. In addition to its ineptitude at explaining the reasons behind the change in different prices, the diagram is completely unhelpful for an actual analysis of all products. It seems that the people the diagram were designed for are current in the process of making a decision between buying gas, having a cheese burger, buying a corvette and becoming President of the United States. Perhaps they can make a well-informed decision now. Aaron M.

  15. Though at first glance the CNN ‘inflation widget’ seems to be a fair indicator of “good deal vs. bad deal,” it ignores the concept of technological change. Any one of the goods considered could have improved (or indeed worsened) in the time allotted. Many of the producers may have expanded, changed hands, moved production sites; in short, the product may have very little to do with what it was. In the case of the postage stamp, higher prices may go towards faster delivery services. The Washington Post now has far fewer grammatical errors due to improved word-processing programs. In short, the chart assumes that the quality of the goods has not changed and that the demand for each good has remained constant. It is impossible to rule out the effect in the increased production of ethanol in analyzing the current increase in inflation. Despite an unremarkable increase in the rate of inflation, consumers remain preoccupied with the notion that everything is more expensive. Whether what they interpret to be inflation however is unclear. The increase in food prices is certainly linked to the increased demand for ethanol. Because corn now fetches a higher price than other crops (primarily soybeans and wheat), America’s breadbasket now resembles a corn depository. The increase in the real price of food is not symptomatic of inflation so much as a downward shift in the supply curve. The relationship between ethanol and inflation is overstated in the minds of consumers. Though ethanol is a renewable energy source, it is perhaps the worst one that the government could support. It pollutes more than the fossil fuels that we are currently using. Corn is one of the most nutrient-hungry crops grown today. In order to produce the quantities that today’s market demands, farmers can no longer afford to leave their fields fallow or even practice crop rotation. The vast majority of corn farms now exclusively grow corn. The nutrients that took thousands of years to build up in the soil are fast being depleted. Now nitrogen-poor, the soil cannot support the exorbitant quantities of corn-seed being cast into it. Farmers use fossil fuel based fertilizers to replenish the soil with nitrogen. Any energy source extracted from corn is by definition bad for the environment. From an economic standpoint, consumers will suffer from shift in the production curve, as has already been seen and felt in the food market. Soon enough every other sector will be affected and prices will continue to rise.

  16. The paradigm on the CNN webpage is useful to consumers because it compares the prices of products in recent year with those in a base year (1972) using a price index method. This paradigm provides consumers with helpful information about particular products and helps them to make rational decisions. This paradigm only covers the price aspect, but fail to address other aspects. For example, an improvement in technology has increased products quality that benefits the consumers who purchase goods. Also, this technological change has decreased the cost of production, creating a rightward shift in the supply curve (prices decrease and more quality of the products in the market). Moreover, a change in consumer trends also impacts a change in price. For instance, if a product becomes less popular, its price might drop even before adjusting the price. This would make the price after adjusting become even lower. Scarcity is another variable that might impact a change in price. For example, the fuel price has increased significantly because of less natural recourses, while the demand for gas has increased greatly. The idea that ethanol production has increased the rate of inflation seems reasonable because a lot of non-corn producers have turned around to produce corn instead of continuing to produce their previous products. This move increases the prices of relative products. However, the increase in the US inflation might have just arrived from non-farm costs such as an increase in oil price, which increases other products’ prices.Moreover, if we consume less Ethanol derived from corn and continue to use oil instead, the price of oil will increase and will impact other goods as well, perhaps even at a higher rate. Therefore, the best choice for us is to consume less of products that required significant amount of energy to produce. Not only will the price drop down according to the demand and supply theory, but also we will produce less pollution, which will improve a quality of the consumers’ lives. -Korlarp Suwacharangkul

  17. It is true that America’s top economic concern is inflation, however the diagram that’s says whether or not items today are good or a bad deal based upon changing prices has many other variables that could dictate the change in prices. Each object in the diagram since 1972 has had dramatic increases in their prices. The diagram shows the prices from 1972 and currently, along with how much inflation they have accumulated. Out of the ten objects shown, six of them are said, in the bottom line, to be good deals. I do not find there to be anything wrong with what the article is doing, if anything it helps many decide if they are making good deals or not. Much of the decision to purchase any of these goods is greatly determined by supply vs. demand and the reservation price of the buyer.I do believe that the ethanol production is driving inflation higher. I do also agree with the government’s stance on supporting ethanol production to solve our energy problems. The production of ethanol has cost this country much in its production of food. Ethanol will presumably solve our nations need for oil, but will it be worth it when we cause other things to become more expensive because its growth has been stunned to make way for the resources needed to make ethanol. – Charles Davis

  18. The problem with the graph in CNN’s article is that there is not a base year with which the 1972 and 2007 prices are made compatible. Therefore, the values for each of these years cannot be accurately compared as the article presents them. Instead, inflation is in some cases exaggerated.Interest rates’ effects on commodities like oil and food are limited. One reason is the goods’ very limited ability to be stored in inventories which are generally created for goods when the interest rate is low and prices are high. This reduces the price’s ability to eventually normalize along with the real interest rate and real money supply. So, when the interest rate lowers, prices continue to increase rather than to eventually decrease. Recent events demonstrate this point. Interest rates have continually been decreasing, but commodity prices continue to increase. The conclusion must therefore be that interest rates are not be the dominant determinant of commodity prices like the price of oil because, if so, prices should not continue to climb. Ethanol has only served to exacerbate this inflation because of its effect upon food prices. The market for ethanol has been growing in recent years. As a result, many farmers have opted to sell more corn to fuel producers rather than food producers. This causes prices for food to increase because of a decrease in supply. These price increases contribute to growing inflation.

  19. The CNNMoney article’s sidebar diagram is flawed in its view of a “good” or “bad” deal. It fails to take into consideration the value of the item, and as several other people have noted, consumers’ reservation prices for a designated item. A person of limited means might find it more worthwhile to spend their money on Harvard tuition, as that will increase their chances of having a successful career in the future. A college education is indispensable in today’s society.So, just because CNNMoney tells us a six-pack of Cola is a good deal, should we buy it? Especially when the reason cola is such a “good deal” could very well be due to society’s ever-increasing awareness of health risks involved with drinking sodas (especially Diet)? No. While the diagram is perhaps an interesting indicator of price trends, its suggestions are ludicrous.

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