INSTRUCTOR DISCUSSION NOTES:
Castro Suggests that US Ethanol Emphasis May be Bad Globally, and He May be Right

1. Illustrate graphically the impact of the subsidy on the market for corn used for energy production.

The production subsidy increases the supply of corn, which lowers the market price, increasing quantity demanded for corn-based ethanol.

2. In terms of environmental impact, what is the difference between corn-based ethanol and sugar-based ethanol? How does that translate into the economic problem at hand?

There are fewer external costs - both in terms of production and consumption - associated with sugar-based ethanol, which would make that the preferred form of ethanol. This would make the social costs of sugar-based ethanol much lower than those of corn-based ethanol.

3. Why are poorer nations around the world suffering as a result of the subsidy in the article?

Poorer nations are being forced to pay more for corn-based food products, because of the reduction in supply of corn used to make food.

Multiple Choice/True False Questions

1. In the market for corn used for energy production, the article describes a
  1. Increase in demand, along with an increase in supply.
  2. Increase in demand, along with a decrease in supply.
  3. Decrease in demand, along with an increase in supply.
  4. Decrease in demand, along with a decrease in supply.
ANS . a

2. In the market for corn used for food production, the article describes a(n)

  1. Increase in supply of corn.
  2. Decrease in supply of corn.
  3. Increase in demand for corn.
  4. Decrease in demand for corn.
ANS .b

3. The impact of the subsidy in the production of corn-based ethanol is to
  1. Reduce the cost of producing corn-based ethanol.
  2. Increase the demand for corn-based ethanol.
  3. Increase the cost of producing corn-based ethanol.
  4. Decrease the demand for corn-based ethanol.
ANS . a

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