As oil prices rose during 2006, the demand for alternative fuels increase. Ethanol, one alternative for fuel is made from corn. According to an article in the Wall Street Journal, the price of tortillas, which are made from corn, also rose during 2006. “The price spike [in tortillas] is part of a ripple effect from the ethanol boom” a. Draw a demand and supply graph for the corn market and use it to show the effect on this market of an increase in the demand for ethanol. Be sure to indicate the equilibrium price and quantity before and after the increase in the demand for ethanol. b. Draw a demand and supply graph for the tortilla market and use it to show the effect on
As oil prices rose during 2006, the demand for alternative fuels increase. Ethanol, one
alternative for fuel is made from corn. According to an article in the Wall Street Journal, the
price of tortillas, which are made from corn, also rose during 2006. “The price spike [in
tortillas] is part of a ripple effect from the ethanol boom”
a. Draw a demand and supply graph for the corn market and use it to show the effect on
this market of an increase in the demand for ethanol. Be sure to indicate the
equilibrium price and quantity before and after the increase in the demand for ethanol.
b. Draw a demand and supply graph for the tortilla market and use it to show the effect on
this market of an increase in the price of corn. Once again, be sure to indicate the
equilibrium price and quantity before and after the increase in the demand for ethanol.
c. By 2015, the price of oil had fallen, which reduced the price of gasoline. The demand
for ethanol fell along with the price of gasoline. What impact would the fall in the
demand for ethanol have on the market for tortillas?
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