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    Effects of change in economic market

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    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

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    Solution Preview

    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 ...

    Solution Summary

    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.