US corn production is used primarily to feed cattle and hogs to produce meat for human...

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Economics

US corn production is used primarily to feed cattle and hogs toproduce meat for human consumption and to produce biofuels. Supposethe demand for corn as livestock feed is given by: Qfeed=24.5-4P,where quantities are in billions of bushels and the price, P, isin dollars. The US government mandates that a fixed percentage ofUS gasoline be blended with ethanol-based biofuel.
Assume this mandate fixes the total quantity of corn used fordomestic fuel production at 10.5 m. bushels per year. Assume theU.S. supply of corn is given as Qs=3P
Suppose the government decides to eliminate the biofuelsmandate. The demand for corn by ethanol producers is given as,Qfuel=12-10P (in the absence of any mandate).
(c) Derive the producer surplus in the US corn market with andwithout the mandate. Are producers better or worse off under thebiofuels mandate?
(d) In your opinion, is the biofuels mandate a regressive orprogressive policy? Explain your answer.

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3.6 Ratings (591 Votes)

c Q s 3PUnder mandate Q d 105 245 4P 35 4PQs Qd P 5 Q 15Producer surplus P Q 12 P Q 375Without mandatethe demand of corn as livestock feed is much higher than thedemand of corn for biofuels Hence only See Answer

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