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need help please This question is about inter-market relationships. Consider the file named Ethanol Mandate. Before the mandate the equilibrium price of corn was dollars
need help please
This question is about inter-market relationships. Consider the file named Ethanol Mandate. Before the mandate the equilibrium price of corn was dollars and the equilibrium quantity billion bushels. After the mandate is implemented, the equilibrium price of corn equals dollars and the equilibrium quantity billion bushels. Food for thought: Can you analyze the effect this policy could have in the gasoline market itself and in the poultry market (corn is a production input in that industry).Ethanol is made out of corn. So the mandatedsignificantly affects the corn market. For this reason some believe that agricultural lobby was partly or mostly behind this policy. The following graph shows the hypothetical demand function for corn unrelated to the ethanol mandate. For example, this is the demand function by U.S. households as well as by the U.S. dairy and meat producers. You see, corn is an important feed in poultry and cattle industries. All the graphs below are based purely hypothetical numbers. $13.0 $12.0 $11.0 $10.0 $9.0 $8.0 $7.0 Price per Bushel $6.0 $5.0 $4.0 $3.0 $2.0 $1.0 $0.0 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Billion BushelsFinally the following graph shows the supply of corn by the U.S. farmers. $9.0 $8.0 $7.0 $6.0 $5.0 Price per Bushel $4.0 $3.0 $2.0 $1.0 $0.0 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Billion BushelsThe following graph shows the hypothetical demand function for corn by U.S. refineries to comply with the ethanol mandate. It assumes that demand for corn to meet the mandate is unrelated to the price of corn. This deos not mean that the demand for corn by refineries is fixed. It is not. Since the mandate requires that 10 percent of gasoline produced must come from ethanol, chnages in gasoline production will cause corresponding chnages in the demand for corn. What the graph shows is that, since demand for ethanol by refineries only depends on the amount of gasoline produced regardless of the price of corn, changes in the corn price have no effect on the quantity of corn demanded by the refineries.Step by Step Solution
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