Tap Island Market Corn Price Response

According to the economics of demand and supply of money, a rise in money supply causes an increase in the rate of inflation. When the government prints and circulates more currency, the selling price of goods rises. This theory underpins various ideas of what people do for their money while they have it. If a person has more money to spend, he or she is clearly able to pay more (Taussig 6). Similarly, as there is more money to invest in the economy, a customer would spend more. However, the price of a product is determined by a variety of market participants. In our case, there are the sellers of corn bags and the buyers. Also considering the market situation, the production of corns is enough to satisfy all the buyers, who preferably are the consumers of the commodity. The perfect merge of the corn volume produced and the consumer needs indicates the absence of surplus or deficit in the market.

Likewise, the increased money supply may result in a notably different impact in the corn market. Foremost, the buyers may have money but not ready to spend hence compelling the farmer of the corn market to maintain the price of corn at a manageable level. Moreover, due to a significant impact in other commodities, the production cost of corn might increase, and the seller will wish to raise the price of the corn per bag, but he or she will still receive responsive resistance of the buyers_x0092_ unwillingness to spend. This instance will only happen if there are substitute or compliment commodities.

The second factor, which is preamble in the case of Tap Island is that residents must buy the corn, assuming it is a _x0093_must-buy commodity._x0094_ Therefore, the sellers will increase the prices of corn bags due to the associated increases costs of production, and in return, the buyer will buy the corn bag at the higher price since there is enough money to spend. Likewise, if at all the increased money in supply will not impact on the corn production cost, the seller in the market will benefit more, that is, the seller will increase the price of the bag of corn and the buyer will be willing to buy more bags despite the selling price.

At the same time, the tap Island farmers, who are also the sellers will wish to produce more of the corn in the market, and as a result, lead to a surplus of corn in the market. This excess will happen if the utility of the consumers gets met and the buyer or the consumer in the market is not willing to purchase more bags of corn. It is also notable that the produced corns get sold only in the Tap market, the supplier noticing that the corns are selling, he or she will produce corns just as per the market demand.

As noted from above, there are consistent pull forces on the side of the seller and the buyer. Also, the initial production of the corns, as outlined, was at equilibrium with the demand of the corns in the market. Hence, _x0093_the new introduction of more money in the market will lead to subsequent decisions of the buyers and sellers_x0094_ (Friedman 22). Furthermore, the increased money in supply will lead to the increased production cost of the corn hence increasing the cost per bag of the corn in the market. The buyers will not have difficulties with the price since they have enough money to spent. This situation will imply that the cost of the corn will increase as the supply remains constant thus resulting in a new equilibrium price at a higher price but the same quantity supply.

Works Cited

Friedman, Milton. “Quantity Theory of Money.” The New Palgrave Dictionary of Economics 10 (March 2017): 1-31.

Taussig, Frank William. Principles of Economics,. Cosimo, Inc, 2013. Print.