South-Western College Publishing - Economics  
I have two words for you...plastics...and corn.
Subject Oil price increases have caused people to search for ways of reducing reliance on oil.
Topic Competitive Equilibrium, Supply and Demand; Production and Costs
Key Words

corn, oil, plastic

News Story

The recent steep increases in oil prices are creating a surge in a different area: producing plastic from corn. Dow Chemical and Cargill have created a joint venture to pursue this new technology, originally thinking that it would be a good way to tap into people's environmental responsibility. Oil price increases have created a more pragmatic positive turn for the two companies.

Typically, people have been slow to adopt such alternative energy sources because they are generally more expensive than fossil-fuel based energy sources. However, corn-based plastic is becoming more and more affordable. In fact, firms argue that even if oil prices were to fall again, corn-based plastic would still compete with petroleum-based plastic because of oil-supply disruption fears.

While corn-based plastic resin has been a hit among some environmental activists, others argue that the production of the new plastic still uses fossil-fuel-based fertilizers and pesticides. However, they concede that such bio-based materials are much more environmentally friendly than oil.

Other manufacturers are getting into the business as well. DuPont has created a joint venture with Britain's Tate & Lyle to create fabric made from corn and petroleum-a fabric that will compete with oil-based nylon. Arguing that the fabric is superior to nylon because of its resistance to stretching and and softer feel, the venture plans to begin production in 2006.

(Updated October, 2004)


Given the information contained in the article, what is the relationship between corn and petroleum for plastics manufacturers?

2. What do you expect will happen to the prices of corn and oil as a result of this new technology? Illustrate your answer with supply and demand diagrams. Does this new technology represent a movement along supply and demand curves, or shifts in those curves?
3. Is this a short-run or long-run transition for plastics manufacturers? Why?
Source Thaddeus Herrick. "One Word of Advice: Now it's Corn." The Wall Street Journal, 12 October 2004,

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