MICROECONOMICS QUESTIONS! I have a few simply micoecon questions that I\'d like

Question

MICROECONOMICS QUESTIONS!

I have a few simply micoecon questions that I'd like help with. Please provice reasoning, as I already have the correct answers -- I just need to understand them.

2.) Assume that the supply curve for corn is upward-sloping. In the market for corn, a primary input in ethanol, what happens to total surplus when the price of ethanol increases? the answer is increases, but I'm not sure why. If the price of ethanol raises, what impact does that have on the input (corn) and how does that increase total surplus?

Explanation / Answer

1. The change in quantity supplied is represented by the curve c because there is no shift in the supply curve (c). The change in quantity supplied is due to change in its own price and not due to other factors. The other factors causes the supply curve to shift to the left. Here(in curve c) no shift in the supply curve has taken place.

2. If the price of ethanol raises, the supply curve of corn will shift to the left. This shift in the supply curve to the left will increase the equilibrium price and reduce the quantity. An increase in the price will increase the producer surplus and hence the total surplus

3.The price floor is binding if the equilibrium price is below the price floor. In this case equilibrium price is $1 which is already above the price floor of $0.9. Thus the price floor is not binding and equiibrium price and quantity will remain in effect. The actual quantity demanded at equilibrium price of$1 is 10 units.

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