Simple Determinant of Supply Question Let's say we have ethanol and chips, both of which are made off of corn. If the production of ethanol is subsidized by the government, what happens to the supply of chips? The way I see this, more ethanol will be produced and more corn will be consumed, and so less corn will be reserved for chips, and so the supply of chips decreases. Am I right in this train of thought?
The supply of chips will probably decrease, although the situation is a bit more complicated than you describe.

The subsidy will tend to increase demand for corn by ethanol producers, both existing producers expanding production and new producers entering the industry. Increased demand for corn for ethanol production may have two effects:


More corn will be sold to ethanol producers.  If total corn production were unchanged, less corn would be sold to chip producers and the supply of chips would decrease.
However, total corn production will probably increase because the increased demand for corn for ethanol production will increase the profitability of growing corn relative to that of other crops or other land uses.  So the likely effect will be that corn is grown on land previously used for other crops, or possibly more land is brought into cultivation. In the medium term (since changes in land use take time) this could partly offset any decrease in the supply of chips.