Economics 121 B & C

Quiz 3

September 26, 1997

Prof. A. D. Becker

 

Name:___________________________

A proposal has been made to increase the sales tax on gasoline and use the revenues to encourage new and expanded ethanol (ethyl alcohol) production through a low-interest loan program. Up to 10% ethanol can be added to automotive gasoline; it replaces refined petroleum. Ethanol is usually made from corn.

  1. Analyze the short-run effects of tax/loan program on the markets for gasoline, ethanol, and corn. ("Analyze" means discuss what will happen to prices and quantities and explain why.) Support your answer with appropriate changes to the graphs below.
  2. Identify some likely long-run (long-term) effects of the tax/loan proposal.

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