The Economics in Practice in this chapter describes the adjustment of the corn and wheat market in the United States to 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 products 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 farmland if oil prices were to fall extensively at the same time? Trace these changes in the economy using supply and demand curves. Assume a given ethanol production subsidy.

trade allows people to focus on one kind of production and trade for their other needs. ( d.)

the answer is "b.the increased supply will create a surplus. "

the essential thought behind price controls is straightforward - utilize the power of law to modify the equilibrium of a market. for instance, the legislature may choose that the steel business needs to survive, and in this way pass a law to set a value floor on steel. this implies all steel sold must offer at or over the floor value, which must be set over the equilibrium cost for it to have any impact. the switch could likewise happen - the administration can choose that steel is excessively costly and set a value roof underneath its equilibrium value, with the goal that all steel must be sold at or beneath that ceiling.