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Subsidies and the Significance of
Ethanol in Corn Markets

By Nathan Goldschlag | Mentor: Robert L. Pennington

Abstract

The empirical relationship among corn prices, ethanol production, and government subsidies is investigated. An econometric model of the demand for corn is proposed and then estimated with two stage least squares. The estimated demand function is used to evaluate the effects of changes in ethanol markets on domestic corn markets. The results show that an increase in the price of ethanol increases both the equilibrium quantity demanded and price of corn. Agricultural subsidies are then brought under question in light of econometric evidence and coupled with current trends in the ethanol and corn industries.

Introduction