Use the following pair of graphs, which illustrate the market for corn (which is used to produce

corn-based ethanol) and a representative firm, to answer the following questions. The first

diagram on the left panel is for the market while the diagram on the right is for a representative

firm in the market. Use the diagrams as the initial points.

$

$

S1

P1

P1

D1

QM Quantity QF Quantity

a. Assume policymakers pass a law requiring that all gas sold in the united State contain at

least 10 percent corn-based ethanol. In the graphs above, illustrate the short-run effects of

this press release. In particular, show how the press release would affect

i. The short-run equilibrium curve in the market for corn

ii. The short-run demand curve faced by the representative firm, and

iii. The representative firm's short-run profit-maximizing level of output.

Label the new curves and equilibrium values using a subscript 2. For instance the new market

demand should be labeled D2

b. Next, graphically illustrate how after the initial changes you illustrated, the corn market

and representative firm would adjust back to long-run equilibrium. Label any new curves

and equilibrium values using a subscript

c. After all adjustments have taken place, what has happened to the equili