Ethanol is a motor fuel manufactured from corn, barley, or wheat, and it can be used to power the engines of many cars and trucks. Suppose that the government decides to provide a large per unit subsidy to ethanol producers. (Assume that there was no ethanol subsidy before). Explain the effects in the markets for the following items:
a) Corn b) Gasoline c) Automobiles
Draw appropriate diagrams separately for each market to show the changes. Label various parts of the diagrams clearly indicating all changes
a) Corn - demand for corn will increase. This will be denoted by a movement of the entire demand curve to the right. This increase in demand will then result to a corresponding increase in price of ...
The discussion shows the effect of ethanol to the demand and supply situation for corn, gasoline and automobiles. The discussions are accompanied by illustrations/graphs as contained in the attached document file.