Ethanol Fuels from Corn

Readers Question: The federal gov. requires that all US cars use some form of ethanol fuels from corn………so what effect will that have on Beef? Price increase first, or Price decreased first, or demand increase first, or Supply increase first or supply decreased first?

If the federal gov. requires all US cars to use some form of ethanol fuels from corn it will:

• Increase demand for Corn. In the short term, the price of corn will rise.

Market for Corn

• Therefore, farmers will devote more land to growing corn rather than beef.
• This will lead to less land available for cattle grazing (supply of beef will fall)
• If we assume demand for beef is stable, then a fall in the supply of beef will cause the price to rise.

Diagram fall in supply causing price of beef to rise

In the long term the higher price of beef could encourage more beef imports from other countries. This might limit the price increase.