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 usecorn-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 thesechanges in the economy using supply and demand curves. Assume a given ethanol production subsidy. Assume for the purposes of this exercise that oil andethanol 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 leftincreasing the equilibrium price of corn.

Subsidy was given to every Gallon of ethanol=$0.45 Given: 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.

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

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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