Self-study
If grain prices double then the average price of a loaf of bread will rise between 10 and 15 percent, whereas the price of grain-fed beef will come close to doubling.
"Surprising" Phenomenon
If grain prices double, why would the average price of a loaf of bread rise only 10 to 15 percent, even though the price of grain-fed beef would almost double?
Objective
The correct answer will suggest a difference between grain-fed beef and a loaf of bread that could make changes in grain price have less of an effect on the price of a loaf of bread than on the price of grain-fed beef.
7.
Which one of the following ██████ ██ █████ ████ ██████████ ██ ██ ███████████ ██ ███ ██████████ █████████ ██████
a
Farmers engaged in ████ ███████████ ██████ ██████████ █████████ ███ ██ ██████ ███ █████ █████ ████████ ██ ███ ██████████ ███ ████ ██ █████
The labor costs involved in beef don’t have a clear relationship to grain prices. We wouldn’t expect reduced labor costs to change the impact of grain prices on the price of grain-fed beef. In any case, we want to explain the strangely low impact grain price has on bread price.
b
The wholesale price ███ █████ ██ ████ ██ █████████████ ███ █████ ███ █████████ █████ ███ █████ ██ ██████
The price of beef compared to the price of bread is irrelevant, because we’re trying to explain the disparity in percentage change in price. Why, if grain price doubles, does bread price only increase 10 to 15% when beef price almost doubles?
c
The labor and █████████ █████ ██ █████████ ███ ███████ █████ █████████ ████ ██ ███ █████ ███ ███ ████ ██ ███████ ██████ ██████████ ████ ██ ███ ████ ██ █████████ █████
Most of the cost of bread isn’t related to grain. But most of the cost of grain-fed beef is related to grain. This could explain why bread price is less affected by changes in grain price.
d
Only an insignificantly █████ ██████████ ██ ███ ████ ████ ██ ██████ ███████ ██ ████████ ████ ██████ ███ ██ █████ ██████ ████ ██████
The comparison in the stimulus involves price changes in bread and grain-fed beef. The fact grain-fed beef isn’t very common compared to other beef doesn’t impact this comparison.
e
The vast majority ██ ██████ ███████ ███████ ████████ ███ █████ ████ ████ ████ █████ ███████████ ██████ ███ ████████ ███ ████ ████ ████ ████ █████ █████████ ██████████ ███████████
Do we have any reason to think being sourced by an independent baker vs. a large wholesale processing operation would impact the degree to which changes in grain price would affect bread or beef price? No.