1. Assume you are a farmer who grows corn and cotton. In the past, you have plan
ID: 1198914 • Letter: 1
Question
1. Assume you are a farmer who grows corn and cotton. In the past, you have planted half of your land in corn and half in cotton. In recent years, the government has mandated that gasoline contain 10% ethanol (fuel made from corn). Which of the following will happen in the COTTON market as a result of the government mandate?
A) As a farmer, I will choose to plant more corn to meet the new demand, thus I will produce less cotton. This will cause the supply line for cotton to shift left, increasing the price of cotton.
B) As a farmer, I will choose to plant more corn to meet the new demand, thus choosing to plant less cotton. This will cause the demand for cotton to shift left, causing a decrease in the price of cotton.
C) The mandate has no effect on the cotton market.
D) As a farmer, I will choose to plant more corn, thus decreasing the supply of cotton. This will cause the supply line for cotton to shift right, leading to a price decrease for cotton.
E) As a farmer, I will choose to plant more cotton to avoid the higher corn prices resulting from the government mandate, thus shifting the cotton supply line right and decreasing the price of cotton.
2. Assume you are a farmer who grows corn and cotton. In the past, you have planted half of your land in corn and half in cotton. In recent years, the government has mandated that gasoline contain 10% ethanol (fuel made from corn). Which of the following will happen in the CORN market as a result of the government mandate?
A) The demand line for corn will shift right, causing a decrease in the price of corn. As a farmer, I will produce more corn due to this lower price, thus increasing the quantity supplied of corn.
B) The demand line for corn will shift to the right, causing an increase in the price of corn. As a farmer, I will plant more corn and less cotton, thus increasing the quantity supplied of corn.
D) The demand line for corn will shift left, causing a decrease in the price of corn. As a farmer, I will produce more cotton due to the low corn prices, thus decreasing the quantity supplied of corn.
E) The demand line for corn will shift left, causing an increase in the price of corn. As a farmer, I will produce more cotton to take advantage of lower prices on cotton, thus decreasing the quantity supplied of corn.
E) As a farmer, I will choose to plant more cotton to avoid the higher corn prices resulting from the government mandate, thus shifting the cotton supply line right and decreasing the price of cotton.
2. Assume you are a farmer who grows corn and cotton. In the past, you have planted half of your land in corn and half in cotton. In recent years, the government has mandated that gasoline contain 10% ethanol (fuel made from corn). Which of the following will happen in the CORN market as a result of the government mandate?
A) The demand line for corn will shift right, causing a decrease in the price of corn. As a farmer, I will produce more corn due to this lower price, thus increasing the quantity supplied of corn.
B) The demand line for corn will shift to the right, causing an increase in the price of corn. As a farmer, I will plant more corn and less cotton, thus increasing the quantity supplied of corn.
D) The demand line for corn will shift left, causing a decrease in the price of corn. As a farmer, I will produce more cotton due to the low corn prices, thus decreasing the quantity supplied of corn.
E) The demand line for corn will shift left, causing an increase in the price of corn. As a farmer, I will produce more cotton to take advantage of lower prices on cotton, thus decreasing the quantity supplied of corn.
Explanation / Answer
A) As a farmer, I will choose to plant more corn to meet the new demand, thus I will produce less cotton. This will cause the supply line for cotton to shift left, increasing the price of cotton.
When suppply of a product increase,s its price decreases and equilibrium quantity increases. on the other hand, when supply of a product decreases, its price increases and equilibrium quantity decreases.
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