Biofuels (mainly ethanol) make up 10 percent of auto fuel in the United States and 5 percent in Canada, and the mandated shares have risen. Farmers are smiling because taxpayers subsidize the fuel. Using ethanol makes food prices higher than they should be.

a. What is the effect on the world price of corn of the increased use of corn to produce ethanol in Canada and the United States?

b. How does the change in the world price of corn affect the quantity of corn produced and consumed in a corn-exporting country?

c. How does the change in the world price of corn affect the quantity of corn produced and consumed in a corn-importing country?