Agricultural goods

Agricultural goods

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The Economics in Practice in this chapter describes the adjustment of the corn market in the United States to the federal mandate requiring refiners to use corn-based ethanol in the production of fuel. Up until January 2012, refiners were given a subsidy of $0.45 for every gallon of ethanol they blended into their fuel. This subsidy drove up the prices of other agricultural goods such as wheat and substantially raised the value of farmland. Assuming the subsidy was still in place, what would happen to the prices of these other agricultural goods and to the value of farm-land if oil prices were to rise extensively at the same time? What if oil prices were to fall? Trace these changes on the economy using supply and demand curves.

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