Question

Suppose that the government ends subsidies to ethanol producers. As a result, the demand for corn, the main ingredient used to produce ethanol, decreases.

In the scenario above, you predict that the market price of corn will _____, and the quantity of corn sold will _____.

	rise; increase
	fall; decrease
	rise; decrease
	fall; increase

Assuming that wheat and corn can be grown on the same type of land, in the scenario above you predict that, in the long run, the supply of wheat will:

	Remain unchanged
	May increase, decrease, or remain unchanged
	Decrease
	Increase

In the scenario above, you predict that the market price of wheat will _____, and the quantity of wheat sold will _____.

	rise; decrease
	rise; increase
	fall; increase
	fall; decrease

Answer 1

Ans. c ) rise, decreases

due to the ends of subsidies by the government to ethanol producers, demand for corn decreases as it is used as inputs to produce ethanol. This effect will lead to rising in the market price of corn and the quantity of corn sold will decrease.

Ans. d) increase

According to the scenario in the first part, in the long run, the supply of wheat will increase as the demand for corn decease. so farmers will move to produce more wheat in the future.

Ans. b) Rise, increase

in the given scenario above, the market price of wheat will increase and the quantity of wheat sold will increase( higher demand for wheat, lower demand for corn)