During the middle of the 2000s, the price of gasoline soared and ...

[yoooooman]

During the middle of the 2000s, the price of gasoline soared and there was a movement to switch to fuels made from a mixture of gasoline and ethanol. Ethanol can be made from corn.
 
  The price of corn skyrocketed and then, after a couple of years, the price decreased. What might have led to these price changes in the corn market?

Question 2

With a natural monopoly,
 
  A) no regulation is necessary because it is a natural monopoly.
  B) regulation takes the form of forcing competition from new firms.
  C) regulation takes the form of forcing the company out of business.
  D) regulation can take the form of average cost pricing to allow coverage of costs.
  E) regulation takes the form of breaking the company into several competing firms.

[kingdude89]

Answer to Question 1

There are thousands upon thousands of corn farmers in the United States. In the middle of the 2000s, high gasoline prices led to movement to incorporate ethanol into gasoline. Ethanol can be made from corn so the demand for corn increased. As a result of the increase in market demand for corn, the price of corn increased dramatically. Corn farmers were getting a high price and making large economic profits.
In the long run, unable to prevent the flow of information to prospective corn farmers, the word got out that economic profit was possible in this arena. Over time, more farmers switched to growing corn, so more corn farmers entered the market, which led to a large increase in the supply of corn. As supply increased, the price of corn dropped.
Thus the higher price was the short-run result of an increase in demand. The falling price reflected the adjustment to the long-run equilibrium, as new corn farmers entered the market.

Answer to Question 2

D

[yoooooman]

Thank you

[kingdude89]

Happy to help you