Discussion Question
Calculate the ratio of soybean prices to oats prices (both in terms of dollars per bushel) in Iowa for the period 1932-1999.
Data Set
Average market price for soybeans and oats in Iowa, 1933-2000
Source: U.S. Department of Agriculture
National Agricultural Statistics Service
Advanced Questions
Prices signal relative scarcities. Market participants don’t know whether changes in price are caused by changes in supply (a flood or drought ruined a crop) or demand (people changed consumption patterns, or new product was introduced). But it doesn’t matter: a decline in price signals a lower value to that commodity or product, and producers who can change their activities as soon as possible. In the case of soybeans and oats, why did price ration change so much? Try to come up with some explanations for the changes. What do you expect happened to the relative production levels of soybean, compared to the choice of leaving farming for some other activity, in 1938? What about in 1987? Why? How do you think consumers responded to the changes in the relative prices of these two goods?
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