BACKGROUND REPORT: Economics plays a crucial role in shaping the reality in which we live

Economics plays a crucial role in shaping the reality in which we live. As people as well as businesses rely on money to survive, this also can dictate how much money is being spent by an individual and a business. From the business side prices are created depending on many factors such as the price it costs the business to be able to supply a product as well as the actual price of the product for the business. This will dictate how much a product will be sold for and potentially the quantity that is sold of that product. The demand for a product also factors into how much will be sold, and the price. This is definitely the case when it comes to food and the ingredients that are used for food. For farmers especially, what is in demand to make a food product is what is in the best interest for a farmer to produce as he/she will know that their product will be bought because of the demand for it. On the consumer side, we see less of the actual production of products as when it comes to purchasing a product the pleasure of that which the product brings to the consumer is what is sought. This dictates our reality as we simply buy or receive the whole product without often knowing where it came from or who actually made it. Are the tomatoes from Mexico or Iowa? Was the t-shirt made in China in a sweat shop or in a factory in the U.S.? Was it produced ethically? Most of the time these questions may be hard to answer or are simply not thought about or sought out. This can make for cheap products not only for the customer but also for the business to create cheaply while making a large profit. But if a product is cheap, it is going to be sold by a larger quantity because of it’s affordability to a large number of people.

One case study that can be used to understand HOW economics has and does influence our reality is by studying the concept and application behind agricultural subsidies. Subsides have existed for decades and act as a price support mechanism and protection for farmers. Subsides will influence supply and demand, manage supply issues, and supplement farmers’ incomes. Subsides showcase how economics effects reality based on the implications and supply issues that are generated from subsidies. Below are two graphs that show a supply and demand curve, with before and after a subsidy is introduced.

*WITHOUT: The blue curve represents the supply of a given commodity for a given farm. The red line represents the demand for the given commodity. Where those two points intersect is called the “equilibrium point” which shows the amount and price a commodity will be produced and sold for.

*WITH: The new blue curve is the supply curve with the added subsidy/ incentive. This pushes the supply curve outward. Assuming demand remains the same, there is a new price and a new quality of the commodity being produced.


As you can see in the second diagram with a subsidy, the farmers will plant MORE of that given crop based on the amount they can get in return. This action will INCREASE the supply, and assuming demand stays the same, will result in more of a given product at a cheaper price. This influences and molds our reality based on what that excess corn (now at a cheaper price) can be used towards. Excess, cheap corn can be sold to more ethanol refineries to produce more bio-fuels, produce more High Fructose Corn Syrup, corn-based animal feeds, and more. All of these implications are caused by economics shaping our reality through the usage of subsides.
Another example is cotton subsidies in west Texas.

West Texas is an extremely dry place and does not make an ideal home to most agricultural products. However, the cotton industry has adapted to this climate and produces a lot of cotton in this region. One of the main reasons why they continue to grow there, even though it is less than ideal conditions, is because of cotton subsidies. This cotton will be harvested throughout the summer and trucked down to New Orleans where it is then boarded on a ship destined for China. China will then transform that cotton into t-shirts which is then shipped back to America and our favorite apparel stores. All of this fits into the consumerism and consumption culture that is America. Within these subsidy stories exists another example of how economics shapes reality. US Congressional members who call these regions home (areas with subsidies) are unlikely to support laws that would reduce these payments. They understand that doing so would reduce support and they would most likely find themselves out of office. Economics can and does affect how politicians vote on a given bill even if it strays from party lines. (However, some presidential candidates in Iowa did not support them based on “getting government spending under control” and not to allow free market principles to take their place)

There is no doubt these subsides shape reality and influence our daily lives. There is a very strong connection to the political realm, and in turn this can influence:

• Trade which in turn dictates a certain availability of goods and the price of those goods
• Relations with other nations
• Politicians, who pass certain bills and laws
• What we see on the shelves at the places we shop
• Our food! Corn-fed beef, High Fructose Corn Syrup, everything having to do with corn!
• Monetary realities (wages vs. price paid for goods)

These are just a few examples of how subsidies can affect reality. So in this sense, economics is a very real thing.