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Using Supply/demand Analysis, Explain Why the Increased Production of Ethanol

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Essay

Using supply/demand analysis, explain why the increased production of ethanol (a gasoline additive made from corn) is raising the price of tortillas (a type of bread made from corn). What effect would this price increase have on people unable to afford this higher price?


Definitions:

Market Economy

An economy in which decisions about production and consumption are made by individual producers and consumers.

Public Goods

Items that cannot be restricted to non-payers and whose consumption by one individual does not diminish availability to others; these are accessible to all, regardless of payment.

Positive Externalities

External benefits.

Common Resource

A type of good that is non-excludable but rivalrous, meaning it is available to everyone but its consumption by one person can limit availability to others.

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