Question

When you feel comfortable with demand and supply topics, you will be able to ponder issues and translates and visualize these in the form of diagrams. Thus let us try a simple exercise: Ethanol production went up 15 times from 1990 to 2011. What effect did this increased used of corn for ethanol have on the price of corn and the consumption of corn as food? Discuss and analyze above by using appropriate economic terminology. Moreover illustrate the aforesaid premises by using a demand and supply diagram.

Answer 1

When more corn is required by the ethanol industry to produce biofuel, the price of corn will increase.The increase in the demand for corn puts pressure on price and price goes up.Higher corn prices will increase the cost of food and consumption of corn as food will decrease.