The hunger crisis in poor countries has its roots in U.S. and European policies of subsidizing the diversion of food crops to produce biofuels like corn-based ethanol. That is, doling out subsidies to put the world’s dinner into the gas tank.
a. What is the effect on the world price of corn of the increased use of corn to produce ethanol in the United States and Europe?
b. How does the change in the world price of corn affect the quantity of corn produced in a poor developing country with a comparative advantage in producing corn, the quantity it consumes, and the quantity that it either exports or imports?