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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.