Ethanol (i.e., ethyl alcohol) is a colorless, flammable liquid that, when blended with gasoline, creates a motor

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Ethanol (i.e., ethyl alcohol) is a colorless, flammable liquid that, when blended with gasoline, creates a motor fuel that can serve as an alternative to gasoline. The quantity of ethanol motor fuel that is demanded depends on the price of ethanol and the price of gasoline. Because ethanol fuel is a substitute for gasoline, an increase in the price of gasoline shifts the demand curve for ethanol rightward. The quantity of ethanol supplied depends on the price of ethanol and the price of corn (since the primary input used to produce ethanol in the U.S. is corn). An increase in the price of corn shifts the supply curve of ethanol leftward. In the first half of 2008, the price of gasoline in the U.S. increased significantly as compared to 2007, and the price of corn increased as well. How would the equilibrium price of ethanol motor fuel in the first half of 2008 compare to the price in 2007?
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Microeconomics

ISBN: 978-0073375854

2nd edition

Authors: Douglas Bernheim, Michael Whinston

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