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Homework answers / question archive / There has been considerable interest in understanding if demand for biofuel (ethanol) has contributed to higher prices of food (see for instance the introduction to Roberts and Schlenker, 2013, "Identifying Supply and Demand Elasticities of Agricultural Commodities: Implications for the US Ethanol Mandate, American Economic Review)

There has been considerable interest in understanding if demand for biofuel (ethanol) has contributed to higher prices of food (see for instance the introduction to Roberts and Schlenker, 2013, "Identifying Supply and Demand Elasticities of Agricultural Commodities: Implications for the US Ethanol Mandate, American Economic Review)

Economics

There has been considerable interest in understanding if demand for biofuel (ethanol) has contributed to higher prices of food (see for instance the introduction to Roberts and Schlenker, 2013, "Identifying Supply and Demand Elasticities of Agricultural Commodities: Implications for the US Ethanol Mandate, American Economic Review). 
Use Q to denote quantity and P price in kronor. The demand for corn can be divided into demand from buyers who seek to use corn for food and those who seek to use it for biofuel.
Let's say that the food demand for corn is given by 
Qfood = 18 - P
Demand for corn for biofuel production is given by:
Qbiofuel = 6 - 2P
a) = Question 1:    Draw the market demand for corn in a diagram with price on the vertical axis (market demand is in this case given by the sum of demand for food and for biofuel production).
b) = Question 1 (bonus):  Assume that the price of corn is 2 kronor. What is the own-price elasticity of demand for corn? What is the own-price elasticity of food demand for corn and the own-price elasticity of biofuel demand for corn evaluated at 2 kronor?  
2.3 After paying for rent and other necessities Emma has a budget (I) of 100 kronor each week that she can choose how to allocate between food (F) and entertainment (E). Assume that the price of F (PF) is 10 kronor per unit and the price of E (PE) 10 kronor per unit. 
a) = Question 2(bonus): Draw Emma's budget constraint; if she buys 5 units of E, how much F can she afford?
b) = Question 3(bonus): Assume that her utility function is given by =√ ∗ Draw the indifference curve that corresponds to a utility level of 5 in the same diagram as a). 

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