Question

Subsidies and the renewable fuel standard led to an increase in the demand for corn (which can be used to produce ethanol). Which of the following general equilibrium effects resulted from this increase?

a. an increase in the price of beef (from corn-fed cows).
b. all of the listed choices resulted from these policies.
c. an decrease in the price of farmland.
d. an decrease in the price of corn.

Answer 1

a. an increase in the price of beef (from corn-fed cows).

Step-by-step explanation:

An increase in the demand for corn for making ethanol would make corn scarce as the demand for corn would exceed its supply.

Due to The scarcity of corn, the price of corn would rise. The rise in the price of corn would make the cost of feeding cows to rise. Thus, the price of beef would rise.

There would be an increase in the demand for farmland as more people would want to start planting corns due to its high demand and potential high profitability.

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