The USDA maintains ethanol has an impact on food prices. "Higher ethanol production definitely and directly raises the price of corn," said USDA economist Ephraim Leibtag. In the long run in the corn market, what is true if the production of ethanol increases?

Question

Quizplus · Accepted Answer

When the production of ethanol increases, it creates demand for corn, which leads to an increase in corn prices. This increase in prices will attract new farmers to enter the market, which will eventually lead to an increase in the supply of corn. As a result, the market price of corn will eventually decrease due to increased supply, and not because existing farmers are exiting the market. Therefore, the best answer is D, new corn farmers will enter the market and decrease the market price.

The USDA Maintains Ethanol Has an Impact on Food Prices