Will this news affect both markets?

corn in corn meal Show more Suppose you are a poor farmer-rancher in rural Mexico. You use imported U.S. feed corn in corn meal for tortillas and as cattle feed. You hear on the news that the U.S. government is going immediately enact a subsidy for U.S. corn farmers to encourage the production of corn for ethanol. The subsidy will reduce the input costs for U.S. farmers growing corn for ethanol. Assume that farmers can only grow feed corn for human or animal consumption or ethanol corn for ethanol production. Also you may assume that before the subsidy the cost of producing feed corn or ethanol corn is the same and so are the equilibrium market prices. Furthermore assume that farmers who take the subsidy must sell all of their corn to ethanol manufacturing plants and cannot take the input subsidy renege on the agreement and sell the corn as feed corn. a.) Draw initial supply and demand curves for ethanol corn and feed corn on two graphs separately. Then draw new curves to show the expected outcome U.S. policy will have on the two corn markets. b.) After hearing about the subsidy your boss the great cattle baron of Mexico for whom you and all farmer-ranchers in Mexico work branding cattle to earn 30% of your annual wages calls you on the phone to tell you he is laying off all of the farmer-ranchers in Mexico for the rest of the year. Show how this will affect the corn markets above. Will this news affect both markets? Assume that for you and other Mexican farmer-ranchers tortillas are an inferior good. c.) As a result of questions one and two what has happened to the market price for feed corn? (circle one) A. Increased B. Decreased C. Unsure: it might increase or decrease D. Did not change E. What market price? d.) For you and other Mexican farmer-ranchers rice is a substitute good for corn as basic food stuff for human consumption. If the market price for feed corn and rice were the same before the announcement of the corn subsidy and the lay-offs on the graph below show how the announcements will affect the rice market. (Hint: You need to draw some initial supply and demand curves and then draw new curve(s) to reflect the change.) *If you shifted something around explain why. If you left the rice market graph unchanged explain why. Help please! Show less

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