Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Price increases, quantity decreases due to higher marginal costs
B
Price increases, quantity increases as producers respond to demand
C
Price decreases, quantity increases due to surplus in the market
D
Price remains constant, quantity decreases as consumers shift to alternatives
Understanding the Answer
Let's break down why this is correct
Answer
In a competitive corn market, when there is an increase in demand for ethanol, which is made from corn, it leads to a higher demand for corn itself. This increased demand means that more people want to buy corn, so farmers can charge higher prices for it. As a result, the equilibrium price of corn rises because the supply of corn remains the same in the short term. With the higher price, farmers are encouraged to grow more corn, which eventually increases the quantity of corn available in the market. For example, if a new law boosts ethanol production, farmers might plant more corn the next season to meet this new demand, leading to both a higher price and a larger quantity of corn sold.
Detailed Explanation
When more people want ethanol, farmers grow more corn. Other options are incorrect because This option suggests that higher costs lead to less corn; This choice says prices drop due to a surplus.
Key Concepts
Market Equilibrium
Supply and Demand Dynamics
Marginal Cost Analysis
Topic
Market Dynamics in Agriculture
Difficulty
hard level question
Cognitive Level
understand
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