
Figure 15.3 The Effects of a Renewable Fuels Mandate on the Markets for Corn and Wheat
(a) Before the renewable fuels mandate, the corn market supplies 20 million bushels of corn at a price of $20 per bushel, where
Dc1 intersects
Sc1. When the demand for corn shifts out to
DcF, corn’s price increases to $28 per bushel, and its quantity increases to 28 million bushels.(b) Wheat, a substitute good for corn, is at an initial equilibrium of 20 million bushels at $20 per bushel, where initial demand curve
Dw1 and supply curve
Sw1 intersect. When the renewable fuels mandate increases corn prices, the demand for wheat increases to
DwF. The wheat market now supplies 24 million bushels of wheat at a price of $24 per bushel, where
DW2 intersects
Sw1.