Kasie asked in Social ScienceEconomics · 6 months ago

Economics homework help! I don't need just an answer if you could explain how to solve these types of problems?

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 fall 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 corn would be affected​ (given the ethanol production​ subsidy) if oil prices were to fall.

​1.)  Using the line drawing tool​, draw either a new market supply curve ​(Upper S 2​) or new market demand curve ​(Upper D 2​). 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 fall​, then the demand for land will ____,____ land prices.

​Further, if oil prices fall​, then the wheat demand supply curve will shift to the ___

This will ____wheat prices.

2 Answers

  • Oiy
    Lv 5
    6 months ago

    In fact, it's the case of a positive externality, means the reason for the subsidy is why the marginal social benefit is higher than the marginal private benefit. The subsidy will originally cause the supply in the corn market to the right. The price of corn will decline, and the quantity will increase. Since there will be more demand for corn, and the lands will be used more for corn plantation, the lands using in other products will decline. So the price of other agricultural products will increase. If the oil price decline and the subsidy is fixed, the supply of corn will shif back. But the demand for oil will increase, so is the demand for corn which will shift to the right. In this case, the price of corn will increase, but the quantity is undetermined.

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  • 6 months ago

    For both you need to determine how the changes described affect demand and then draw a supply or demand curve that matches.

    So, oil is an input necessary to produce the corn. What happens to the supply curve and subsequently the demand curve when the prices of production inputs decrease?

    Note that subsidies drove up the prices of other agricultural products such as wheat and substantially raised the value of farmland.

    Oil is now cheaper, what is going to happen to the prices of farmland and of wheat? If the subsidies drove up the price of oil which in turn drove up those prices, what should happen now that the oil is cheaper?

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