Assume that the demand for ethanol, a corn-based alternative fuel, decreases. As

Question

Assume that the demand for ethanol, a corn-based alternative fuel, decreases. As a result, ethanol producers petition the Environmental Protection Agency (EPA) to raise the allowable amount of ethanol in gasoline blends from 10 percent to 15 percent.

a. Draw and accurately label the graph that reflects market for corn.

b. Draw and accurately label the graph that reflects market for tortillas.

c. If the EPA were to agree to the proposal to increase the amount of ethanol in blends from 10 percent to 15 percent, what would be the effect on the price of tortillas, also a corn-based product?  

Explanation / Answer

I am not able to attach graphs. But the answer is as follows:

a) Demand curve for corn will shift to right from the initial demand curve.

b) Since more corn will be used for ethanol, so less corn would be available for tortillas. Supply of tortillas would decrease.

c) Since supply of tortillas would decrease, so the price will increase to equate the demand with supply.

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