How would the market for corn be affected (given the ethanol production subsidy) if oil prices were to rise? If the price of oil rises, then the demand for corn will decrease shifting the demand curve for corn to the left increasing the equilibrium price of corn.

ENGR.ECONOMIC ANALYSIS
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ISBN:9780190931919
Author:NEWNAN
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Chapter1: Making Economics Decisions
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options decrease or increase right or left

The Economics in Practice in this chapter describes the adjustment of the corn and wheat market in the United States to federal mandate requiring refiners to use
corn-based ethanol in the production of fuel. Up until January 2012, refiners were given a subsidy of $0.45 for every gallon of ethanol they blended into their fuel.
This subsidy drove up the prices of other agricultural products such as wheat and substantially raised the value of farmland. Assuming the subsidy was still in place,
what would happen to the prices of these other agricultural goods and to the value of farmland if oil prices were to rise extensively at the same time? Trace these
changes in the economy using supply and demand curves. Assume a given ethanol production subsidy. Assume for the purposes of this exercise that oil and
ethanol are substitutes.
How would the market for corn be affected (given the ethanol production subsidy) if oil prices were to rise?
If the price of oil rises, then the demand for corn will decrease shifting the demand curve for corn to the left
increasing the equilibrium price of corn.
Transcribed Image Text:The Economics in Practice in this chapter describes the adjustment of the corn and wheat market in the United States to federal mandate requiring refiners to use corn-based ethanol in the production of fuel. Up until January 2012, refiners were given a subsidy of $0.45 for every gallon of ethanol they blended into their fuel. This subsidy drove up the prices of other agricultural products such as wheat and substantially raised the value of farmland. Assuming the subsidy was still in place, what would happen to the prices of these other agricultural goods and to the value of farmland if oil prices were to rise extensively at the same time? Trace these changes in the economy using supply and demand curves. Assume a given ethanol production subsidy. Assume for the purposes of this exercise that oil and ethanol are substitutes. How would the market for corn be affected (given the ethanol production subsidy) if oil prices were to rise? If the price of oil rises, then the demand for corn will decrease shifting the demand curve for corn to the left increasing the equilibrium price of corn.
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