Use the Following Pair of Graphs, Which Illustrate the Market

question 91

Essay

Use the following pair of graphs, which illustrate the market for corn (which is used to produce corn-based ethanol)and a representative firm, to answer the following questions.
Figure 7.1
a. Assume policymakers pass a law requiring that all gas sold in the United States contain at least 10 percent corn-based ethanol. In the graphs above, illustrate the short-run effects of this law. In particular, show how the law would affect
•the short-run equilibrium in the market for corn,
•the short-run demand curve faced by the representative firm, and
•the representative firm's short-run profit-maximizing level of output.
Label the new curves and equilibrium values using a subscript 2.
b. Next, graphically illustrate how, after the initial changes you illustrated in question 7, the corn market and the representative firm would adjust back to long-run equilibrium. Label any new curves and equilibrium values using a subscript 3. After all adjustments have taken place, what has happened to the equilibrium market price, the number of firms operating in the market, and the representative firm's profits? Why?

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Definitions:

Lawrence Kohlberg

An American psychologist best known for his theory of stages of moral development.

Postconventional Moral

A level of moral reasoning that is based on abstract reasoning and principles, beyond societal norms or laws.

Segregation

The act or state of separating or setting apart from others or from the main body or group.

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The state of carrying a developing fetus within the uterus.