Reference no: EM131501427

CASE STUDY: Price and Opportunity Cost

All choices involve opportunity costs. There is always a next most desirable alternative that we reject in favor of the option we choose. For many decisions, all things being equal, people are likely to pick the same option when faced with the same choices. They choose that option based on their resources and their values. However, circumstances change, and that affects the choices that people make. Read the case study, and then answer the questions that follow.

In recent years, agricultural companies have used technology to develop new strains of plants. They do so by altering a plant's genes-the material inside plant cells that determines the plant's traits. Scientists can make the plants better able to resist insects or infections.

These biologically engineered crop plants are labeled as "genetically modified," or "GM." Some critics call the crops "Frankenfoods," generating frightening parallels with Frankenstein's monster. The name underscores the concern that these foods might not be healthful.

Europeans, in particular, have been hostile to GM crops. Some European countries banned the growth or sale of GM crops. American wheat growers, who sell half their crop abroad, refused to buy GM wheat. They were afraid they would not be able to sell their crops if they used GM strains. Some companies around the world were even willing to pay slightly higher prices for non-GM plant products.

GM plants, then, have not always had a welcome reception. That changed in 2008, however-at least for some buyers. Rising oil prices in recent years had led many countries to begin processing corn not as food or animal feed but into ethanol, a fuel that can be used to run vehicles. Some farmers were happy to make the change- they could sell their corn for higher prices. However, this new use of corn had another effect: it made the supply of corn scarcer, raising food prices.

As a result, some businesses that had previously stayed away from GM plants had to make new choices. The price of regular corn rose so sharply that it cost $100 a metric ton more than GM corn.

South Korean companies that process corn had to buy the less-expensive GM variety to control their costs. Even in Europe, companies that raised livestock began to complain that laws banning GM feed could hurt them financially.

Facing rising prices, they wanted access to cheaper, GM alternatives

1. (a) How are GM foods different from regular foods? (b) How did some people show their opposition to GM foods?

2. (a) What was the opportunity cost of non-GM food for many buyers before 2008? (b) Why did they prefer the alternative? (c) What was the opportunity cost in 2008? (d) Why did it change?

3. (a) What do you think will happen if the price of non-GM crops continues to rise? Why? (b) What will happen if the price of non-GM food drops? Why?

4. Describe an economic choice you have made or know of that was based on noneconomic considerations.