Final answer:
An increase in ethanol demand leading to higher corn prices would likely result in a decreased supply of soybeans, leading to higher soybean prices, as farmers allocate more land for the more lucrative corn.
Step-by-step explanation:
Considering that soybeans and corn are both used as animal feed, an increase in the demand for ethanol, which is derived from corn, would lead to a rise in the equilibrium price of corn. Given this scenario, ceteris paribus (all other things being equal), farmers might be incentivized to allocate more land to corn production to take advantage of the higher prices. As a result, the supply of soybeans could decrease because the same land resources are being used more for corn production. This decreased supply of soybeans, assuming demand remains constant, would likely cause the equilibrium price of soybeans to increase as well.
The relationship between the two crops is an example of opportunity cost and substitution in production. When farmers switch to growing more corn to meet the increased demand for ethanol, they forego the opportunity to plant soybeans on that land. This substitution effect means that as the equilibrium price of corn increases and draws more resources toward its production, the quantity supplied of soybeans is expected to decline, thus raising prices in the soybean market as well.