Answer to Question #62704 in Macroeconomics for Sowmya
Hi! I have a question
I'm currently studying for economics o level and I was doing some past papers
In one, the question was "In 2011, the US government declared that the country must increase the manufacture of fuel from crops such as corn that have previously only been used for food. What is likely to happen in the market for corn?"
The options were
A) a movement along the demand curve for corn
B) a movement along the supply curve for corn
C) a shift to the left in the demand curve for corn
D) a shift to the right in the demand curve for corn
naturally, knowing that movements along the curve were only caused by price factors, I picked D... however, the answer was B... can you explain why?
Both B) and D) are correct answers. One may expect that the increase in manufacturing of fuel from crops will result in increased demand for crops, which is graphically a shift to the right in the demand curve. At the same time, since in the short run there will be no new technologies/production facilities for corn the shift of the demand curve will give rise to a movement along the supply curve. Attached is the illustration.
I would say that the question was a bit controversial.