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. Show how the market for com would be affected (given the ethanol production subsidy) if oil prices were to rise. 1.) Using the line drawing tool, draw either a new market supply curve (S₂) or new market demand curve (D₂). Properly label your curve. 2.) Using the point drawing tool, indicate the new market equilibrium (Equilibrium). Properly label your point. Note: Carefully follow the instructions above and only draw the required objects. At the same time, if oil prices rise, then the demand for land will Further, if oil prices rise, then the wheat This will wheat prices. curve will shift to the ▼ ▼ land prices. (5) los 10 oct Q₁ Quantity of com per year •D₁
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. Show how the market for com would be affected (given the ethanol production subsidy) if oil prices were to rise. 1.) Using the line drawing tool, draw either a new market supply curve (S₂) or new market demand curve (D₂). Properly label your curve. 2.) Using the point drawing tool, indicate the new market equilibrium (Equilibrium). Properly label your point. Note: Carefully follow the instructions above and only draw the required objects. At the same time, if oil prices rise, then the demand for land will Further, if oil prices rise, then the wheat This will wheat prices. curve will shift to the ▼ ▼ land prices. (5) los 10 oct Q₁ Quantity of com per year •D₁
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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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 $0.45 for every gallon of ethanol they blended into their fuel. This subsidy drove up the prices of
other agricultural products such as wheat and substantially raised the value of farmland. Assuming the subsidy was still
in place, what would happen to the prices of these other agricultural goods and to the value of farmland if oil prices were
to rise extensively at the same time? Trace these changes in the economy using supply and demand curves. Assume a
given ethanol production subsidy.
Show how the market for com would be affected (given the ethanol production subsidy) if oil prices were to rise.
1.) Using the line drawing tool, draw either a new market supply curve (S₂) or new market demand curve (D₂). Properly
label your curve.
2.) Using the point drawing tool, indicate the new market equilibrium (Equilibrium). Properly label your point.
Note: Carefully follow the instructions above and only draw the required objects.
At the same time, if oil prices rise, then the demand for land will
Further, if oil prices rise, then the wheat
This will
wheat prices.
▼curve will shift to the
▼
▼
land prices.
Price of com ($)
Q₁
Quantity of corn per year
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