Question
Ethanol, a fuel, is made from corn. Since 1990 more of the corn production is used for producing ethanol, rather than for food, since selling
Ethanol, a fuel, is made from corn. Since 1990 more of the corn production is used for producing ethanol, rather than for food, since selling corn to ethanol producers gives farmers a higher income than selling corn for food to consumers.
(a) Please show the impact of the increased use of corn for ethanol on the demand and supply of "corn for food" and give an explanation. You must draw a graph with the supply and demand curves of "corn for food" and show what happens to the supply curve and the demand curve of "corn for food" as a result of the increased preference of corn farmers to sell corn to ethanol producers.
(b) What has happened to the equilibrium market price of "corn for food", based on your graph and the changes you have described in the market for corn for food? Please show this change on the graph you have drawn in (a) and do not draw a second graph.
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