5. The United States federal government gives a $0.45 tax subsidy to gasoline producers for every gallon of ethanol blended into gasoline (a subsidy is a payment made by the government to an individual or firm, usually for performing some kind of action, like production of a particular product). Describe and illustrate the impact of the subsidy on the market for gasoline blended with ethanol.

5. The United States federal government gives a $0.45 tax subsidy to gasoline producers for every gallon of ethanol blended into gasoline (a subsidy is a payment made by the government to an individual or firm, usually for performing some kind of action, like production of a particular product). Describe and illustrate the impact of the subsidy on the market for gasoline blended with ethanol.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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24 20 S: 12 8 * 4 8 12 16 20 24 Q 10 WL D 一国 P. 16 4.
16. Given that the U.S. government mandates the use of ethanol as a partial substitute for gasoline (10% by volume), and that ethanol manufactured in the U.S. is made from corn; how will the supply of ethanol, the demand for ethanol, as well as its equilibrium price and quantity, be affected by the following event: The government drops the mandatory requirement of minimum ethanol fuel content for cars. b) Demand will increase. h) Equilibrium Price will increase. c) Demand will decrease. g) Equilibrium Quantity will decrease. j) Equilibrium Price and Quantity will remain unchanged. d) Supply will increase. i) Equilibrium Price will decrease. a) To the extent the amount of ethanol additive in gasoline is determined by government fiat, neither demand for not supply of ethanol will be affected unless the government changes its requirements. e) Supply will decrease. f) Equilibrium Quantity will increase.
M10
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